Presentation is loading. Please wait.

Presentation is loading. Please wait.

1. Economic Strategic Stream 2. Behavioural Process- Oriented Stream  Numerous theories and models can be placed within each of them  Next we consider.

Similar presentations


Presentation on theme: "1. Economic Strategic Stream 2. Behavioural Process- Oriented Stream  Numerous theories and models can be placed within each of them  Next we consider."— Presentation transcript:

1 1. Economic Strategic Stream 2. Behavioural Process- Oriented Stream  Numerous theories and models can be placed within each of them  Next we consider some of the most popular /best known and widely used theories and frameworks within these two streams  Note that non of them has escaped criticism  However,it is advisable &can be usefull for practioners and researchers to know their origin,developments and fields of use/applications. 1

2  The economic-strategic approaches put strong emphasis on rational decision-making  Market Imperfection – Causes Hymer 1960,1967 and later tested by others: Kindleberger (1969), Geubwr, Mehta and Vernon (1967).  The above scholars challenged the then dominant view of international trade :(Hecher-Olin theory was dominant at the time, based on the assumption of competitive markets and did not consider the micro-level actors.)  Internationalization was seen as derived from country-level comparative adv.  Hymer focussed on the firm when trying to explain why foreign firms internationalize & become MNCs  According to Hymer the MNCs demonstrated that competition is often imperfect. The firm becomes MNC when it possess an advantage(s)which gives it a monopolistic advantage that helps the firm to succeed abroad by using FDI to protect, control & fully benifet from the advts it owns.  Market Imperfection:results from... 2

3  Market imperfctions that lead to FDI could be due to: a) Imperfection in product or factor markets, b) Economies of scale and learning, c) Possesion of certain intangales, d) Control of distribution system, e) Product differentation, f) Politically created imprfections eg: subsidies,concessions,policy instruements that attract and/or discriminate. g) Through their decisions/actions, MNCs themselves restructure the markets &the rules of the game. 3

4  A modern variant of market imperfection theory is the resource-base view  Edith Penrose(1959)(in Theory of the growth of the firm )proposed resources as important factor in the firm growth,(’firms are pools of intangible resources’)  Wernerfelt (1984)conceptual article's ‘A resource-based view of the firm’s analyzed from a resource perspective, the efficacy of sequential entry strategies for diversifying firm.  Barney(1991)built his frame work on Penrose’s work. It suggested that ‘firms obtain sustained comp.advts by implementing strategies that exploit their internal strengths, through responding to environmental opportunities, while neutralising external threats and avoiding internal weaknesses’  These resources enable the firm to enjoy long term superior performance bec. they are :valuable, rare, imperfectly imitable,and embedded in the organisation(vrio).  The framework was based on two assumptions :firms are internally heterogeneous in terms of strategic resources they control, and resources are imperfectly mobile, thus allowing long-term firm heterogeneity  Criticism? 4

5  Transaction cost and Internalization theories Williamson 1979, 1985 Teece 1986 Buckley and Casson 1976, 1981 Hennart 1982  What is transaction cost? Why it takes place? 5

6 6

7  Rivalistic and Strategic Behaviour Ghoshal 1987, Porter 1986, Prahalad and Doz 1987, Hill et al, 1990, Yip 1989  The Eclectic Framework ( Dunning 1981, 1988, 2001 ) John Dunning has over thirty years developed what is known as the Eclectic Paradiam(Framework ) which synthesizes the varaious strands of other theories within the economic-strategic stream. Eclectic,represent the idea that a full explanation of the international activities needs to draw on several strands of economic theory. Dunning proposes that the propensity of the firm to engage in inter.production increases if the following three conditions are satisfied: 1.Ownership advantages 2.Location advantages 3.Internalization advantages These also constitute the three sets of factors that are considered necessary in order to explain the choice of foreign operation methods,rangaing from exports to FDI. They are: Ownership(O)factors,Location (L)factors,and Internalization (I)factors.OLI acronym. -The paradigm encompasses: market imperfection and resource-based theory (the O factor),international trade and location theory(the L factor) and the transaction cost theory(the I factor) 7

8 8

9  Large growth since 1980  Uneven distribution  Most FDI has been earlier between OCED countries  Developing countries – esp. China and India – are now popular locations. Reasons:?  Some African and Latin American countries have recently emerged as important locations. Reasons:?  Since mid 1990s Eastern Europe 9

10  After WWII, the US was the major source. Reasons:?  The UK, France, Holland, Germany and Japan have become since the 1960 important source  China has recently become another major source: Reasons:?  Some developing countries have also appeared on the FDI stage. Examples: India, United Arab Emerates,Qatar. 10

11  Three decisions:  Where? Host location  How? Entry mode and combinations  How much? Value of investment and associated risks and control.  Above decisions are made in the face of huge uncertainty  Uncertainty arise due to various aspects of ”distance” 11

12  Recently, the internationalization of industrial firms has been explained through networks and relationships between firms  Firms intermationalize because other firms in their national network internationalize  The firms within the network are dependent on each other and their activities therefore need to be co-ordinated  These networks are stable or are changing, but the transactions take place within the framework of these established relationships  A basic assumption is that the firm is dependent on external resources controlled by other firms in its network. Thus it has to work for international integration 12

13 13

14  VIEW INTERNATIONALIZATION DECISIONS THROUGHTHE LENSES OF LIMITED RATIONALITY AND ORGANAZITIONAL LEARNIG PROCESSES  TAKE A MORE HOLISTIC APPROACH.  DEVELOPED A GRADUAL AND INCREMENTAL VIEW.  THE UPPSALA MODEL:  JOHANSON AND WIEDERSEIM-PAUL(1975) EXAMINED THE INTERNATIONALIZATION OF FOUR SWEDISH FIRMS.THEY FOUND A REGULAR PROCESS OF GRADUAL AND INCREMENTAL CHANGE:  1.NO REGULAR EXPORT 2.EXPORTS VIA AGENTS 3.SALES SUBSIDIARY 4.PRODUCTION IN FOREIGN MARKETS  INTERNATIONALIZATION ATTITUDE ARE THE BASES FOR THE DECISION TO ENGAGING IN FOREIGN ACTIVITIES,AND INTERNATIONAL ACTIVETIES INFLUENCE THESE ATTITUDES  THUS THE PROCESS IS AN INTERACTION BETWEEN ATTITUDE AND ACTUAL BEHAVIOUR.  THE SEQUANCE OF STAGES IS CALLED THE ESTABLISHMENT CHAIN. HOWEVER IT IS DIFFICULT TO HAVE A CLEAR DEMARCATION BETWEEN THE FOUR STAGES. 14

15  THE CONCEPT OF PSYCHIC DISTANCR IS INTRODUCED TO EXPAIN THE SEQUENCE OF ACTIVITIES(DEFINED AS FACTORS PREVENTING OR DISTURBING THE FLOWS OF INFO BETWEEN FIRMS AND MARKETS:LANGUAGE,CULTURE,ECON.AND POLITICAL SYSTEMS,LEVEL OF INDUSTRAIL DEVELOPMENT)  JOHANSON AND VAHLNE (1977),EXAMINED THE INTERNALIZATION PROCESS FURTHER BY INVESTIGATING THE DEVELOPMENT OF KNOWLEDGE AND THE BUILDING OF A COMMITMENT WITHIN THE FIRM TO FOREIGN MARKETS.  CONFIRMED TWO ASPECTS.:RESOURCE COMMITMENT TO FOREIGN MARKETS (MARKET COMMITMENT ) AND KNOELEDGE ABOUT FOREIGN MARKETS POSSESSED BY THE FIRM AT A PARTICULAR TIME ARE THE MOST IMPORTANT FACTORS  MARKET K. COMMITMENT DECISION  MARKET C CURRENT ACTIVITIES  THE HSE HOLISTIC MODEL  What is meant by Holistic ? I T COMBINES THE DYNAMIC PRODUCT, OPERATION AND MARKET PATTERNS INTO HOLISTIC POM - PATTERN WITH DIFFERENT STAGES : 1.S TARTING 2. D EVELOPMENT 3. G ROWTH 4. M ATURE S EE FIG 4, LUOSTARINEN WIDER PUB AND 1974:182 15

16  The POM-pattern includes Inward Stage, Outward Stage and Cooperation Stage (fig 6, Wider Pub. 1994)  Recently it incorporate the De-internationalization and Re-internationalization strategies  Reijo Luostarinen wholistic stages pattern model (a separate lecture will be devoted) 16

17 17

18 18

19 19

20 20

21 21

22 22

23 Traditional Global internationalizersInternationals BORN GLOBALS 23 Domestic phase International phase Global phase

24 Dimension/AuthorVisionTime before starting export Export versus global growth/ age Oviatt & McDougall A business organisation that, from inception, seeks to drive significant competitive advantage from the use of resources and the sale of outputs in multiple countries McKinsey & Company (1993) And Rennie (1993) Management views the world as their market place from outset of the firms founding. Began exporting, on average, only 2 years after the foundation. Achieved 76% of their total sales through exports at an average age of 14 years Knight & Cavusgli (1996) Management views the world as its marketplace from the outset of the firm’s founding Begin exporting one or several products within two years of their establishment. Tend to export at least a quarter of total production Chetty & Campbell-Hunt (2004) Within two years of inception.80% of sales outside New Zealand, markets are worldwide. Luostarinen & Gabrielsson (2006) Global vision and/or at a global growth path. At the outset entered global markets Make over 50% of their sales outside home continent. Established after Servais, Madsen & Rasmussen (2007) Within three years of their establishment. More than 25% of foreign sales or sourcing home continent. 24

25  International entrepreneurship is a combination of innovative, proactive, and risk-seeking behaviour that crosses national boundaries.  Perhapts because the seminal works (Knight/Cavusgil 1996) originated from the US, the original definition of 25% exports by the BG within three years of its inception was, as seen by Europeans, not very demanding.  Hence, Finnish authors suggested that at least 50% to be sold in continents external to the one which the firm originates from to qualify as a BG (Luostarinen/Gabrielsson 2004) 25

26  Given the fact that BGs are led by entrepreneurs and their firms are international, what else can we say to define them specifically?  These are the increasingly global nature of demand in some market segments  Market potential may be unequally balanced betweenb different continents. What is important is that the Born Global firm is targeting worldwide the key country markets in which potential exists  Products have to be those with distinct differentiation: unique technology and/or superior design or unique product / service, or know-how, systems or other highly specialized competence. 26

27  Global vision at inception in order to drive toward global success.  Must carry the risks of a small start-up company; it cannot be a spin-off from a larger firm that is prepared to help it float.  Furthermore, it should be noted that the industries they emanate from may be what are conventionally termed high-tech e.g. wireless or low-tech e.g. clothing.  We should be somewqhat flexible about the numerical internationalization requirement within a three year time period of its inception. 27

28 Company Product Founded Intern’zation% Glob’zation% Environics Gas detection % 65% systems StonesoftIT security %60% solutions VaconFrequency %41% conventers BiohitHospital and laboratory eq %28% 28

29 Born Global -Global vision from inception -Blobal product (unique and specialized) early on -Accelerated internationalization capability from inception Born Again Global -Global vision later -Global product later Accelerated internationalization capability later Traditional internationalizing SMEs -Distance still matters -Local products (not enough unique or specialized) Accelerated Internationalization capabilities low 29 Speed of growthSpeed of growth HighHigh lowlow E a r l yL a t e

30  Broad product portfolios are not possible - New to the world, niche segment - Focused product portfolios - Advanced products (services and systems) early on  Traditional stages model not to be taken as normative guideline - Speed is vital whern espablishing business operations - Operation stages progressed faster or some stages jumped over - Co-operative operation modes at an early stage (R&D, Marketing)  Step wise market entry too slow - Country market expansion is rapid - Still Europe comes first - But American or Asian markets entered within 1st to 4th year 30

31 Small companies with small markets and with limited financial and managerial resources have to globalise the firm and to do it soon and fast?  General managerial challenges  Research and development challenges  Financial challenges  Other 31

32  Young age of Born Globals and their founders  Young age of founders, managers and personnel of Born Globals  Difficulties to hire experienced top managers  Need for strategic globalisation knowledge and global marketing knowledge is exceptionally high already at the time of the establishment  Planning for global business may be neglected and earning logics and business portfiolios nor properly considered (Lack of focus and sufficient revenue flows)  Product, operation and market selections for globel business and price, distribution, customer and promotion decisions may be wrong and cause losses for the Born Globals  Problem of trust and creditability in the eyes of different potential value chain and network partners and financial institutions. 32

33  Weak availability of money for Born Globals from venture capital firms and other similar sources  Non-availability of money for service, know how and system Born Globals from banks and other similar sources  Unpreparedness of Born Globals to the fiercefully changing situation in capital markets  Weak or nonexistent revenue flows in Born Globals due to the heavy and long-term R&D investments and ”delayed” sales and marketing plans  Drastically cut investments and purchases in customer firms and use of below-cost penetration pricing for getting the first reference customer deal. 33

34 34


Download ppt "1. Economic Strategic Stream 2. Behavioural Process- Oriented Stream  Numerous theories and models can be placed within each of them  Next we consider."

Similar presentations


Ads by Google