1. © 2013 Cengage Learning. All rights reserved. CHAPTERS 4 & 6 GLOBAL2  PENG © Nadine Hutton/Bloomberg via Getty Images Leveraging Resources &

2. SWOT ANALYSIS Strengths and Weaknesses – internal assessment of the organization leading to management decisions. Opportunities and Threats – external assessment of the business environment to identify the uncontrollable events that might impact management decisions. © 2013 Cengage Learning. All rights reserved. © iStockphoto.com/photovideostock 2

3. RESOURCES AND CAPABILITIES (terms are used interchangeably in this text) The tangible and intangible assets a firm uses to choose and implement its strategies. 3

4. UNDERSTANDING RESOURCES AND CAPABILITIES Tangible resources and capabilities Assets that are observable and easily quantified. Intangible resources and capabilities Assets that are hard to observe and difficult (if not impossible) to quantify.

6. OUTSOURCING Outsourcing Turning over an organizational activity to an outside supplier that will perform it on behalf of the focal firm. Offshoring – foreign firm Onshoring (inshoring) – domestic firm Captive sourcing Setting up subsidiaries abroad so that the work done is in-house but the location is foreign. Also known as foreign direct investment (FDI).

7. TWO-STAGE DECISION MODEL © 2013 Cengage Learning. All rights reserved. 7

8. VRIO FRAMEWORK alue – do firm resources and capabilities add value? arity – how rare are the resources and capabilities? mitability – valuable and rare resources provide competitive advantage only if they are rare. rganizational – valuable, rare, and hard to imitate resources must be well organized. © iStockphoto.com/photovideostock 8

9. VRIO FRAMEWORK AND FIRM PERFORMANCE Sources: J. Barney, Gaining and Sustaining Competitive Advantage, 2nd ed. (Upper Saddle River, NJ: Prentice Hall, 2002) 173; R. Hoskisson, M. Hitt, and R. D. Ireland, Competing for Advantage (Cincinnati: Thomson South-Western, 2004) 118. 9

10. VALUE Only value-adding resources provide competitive advantage. Non-value-adding resources may lead to competitive disadvantage. 10

11. RARITY 11 Intellectual property (IPR) Reverse engineering

12. IMITABILITY Imitation is difficult because of causal ambiguity, which means the difficulty of identifying the actual cause of a firm’s success. Outsiders usually have a hard time understanding what a firm does inside its boundaries. Additionally, even managers of a firm often do not know exactly what contributes to their success. Example: Barbie Other examples? 12

13. © 2013 Cengage Learning. All rights reserved. KEY TERMS ASSOCIATED WITH FDI Terms to know:  Foreign direct investment (FDI)  Foreign portfolio investment (FPI)  Horizontal FDI  Vertical FDI  FDI flow  FDI inflow  FDI outflow

14. FDI VOCABULARY Foreign direct investment (FDI) Putting money in activities that control and manage value- added activities in other countries (UN: equity stake of 10% or more) Foreign portfolio investment (FPI) Holding securities, such as stocks and bonds, of companies in countries outside one’s own but does not entail the active management of foreign assets (foreign INdirect investment) Management control rights Authority to appoint key managers and establish control mechanisms (adequate % equity required to accomplish control/ownership)

15. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. FDI VOCABULARY FDI flow - The amount of FDI moving in a given period (usually a year) in a given direction. FDI inflow FDI moving into a country in a year. FDI outflow FDI moving out of a country in a year.

16. © 2013 Cengage Learning. All rights reserved. HORIZONTAL FDI When a firm takes the same activity at the same value-chain stage from its home country and duplicates it in a host country.

17. © 2013 Cengage Learning. All rights reserved. VERTICAL FDI When a firm moves upstream or downstream in different value-chain stages in a host country through FDI.

18. UPSTREAM AND DOWNSTREAM VERTICAL FDI Upstream vertical FDI Using FDI in an earlier activity in the value chain Downstream vertical FDI Using FDI in an later activity in the value chain © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

19. © 2013 Cengage Learning. All rights reserved. WHY DOES FDI TAKE PLACE? FDI provides gains to a firm through OLI

20. © 2013 Cengage Learning. All rights reserved. HOW DOES FDI RESULT IN OLI ADVANTAGES? OWNERSHIP ADVANTAGES – possession and leveraging of certain valuable, rare, hard-to-imitate, and organizationally embedded (VRIO) assets overseas in the contect of FDI. Direct is the key word in FDI. Direct ownership provides combination of equity ownership rights and management control rights. Licensing – selling technology or intellectual property for a fee

21. © 2013 Cengage Learning. All rights reserved. OWNERSHIP ADVANTAGES FDI vs. Licensing

22. OLI ADVANTAGES Location Features unique to a place, such as its natural or labor resources or its location near particular markets, that provide certain advantages to firms doing business there Internalization Replacement of cross-border markets (such as exporting and importing) with one firm (the MNE) locating and operating in two or more countries © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

23. © 2013 Cengage Learning. All rights reserved. LOCATION ADVANTAGES  Some locations possess geographical features that are difficult to match.  Location advantage can arise from agglomeration – the clustering of economic activities in certain locations. Wichita KS – Who knew?

24. © 2013 Cengage Learning. All rights reserved. LOCATION ADVANTAGES Results from: Knowledge spillover – diffusion of knowledge from one firm to others among closely located firms that attempt to hire individuals from competitors. Industry demand for skilled workers Industry demand that facilitates a pool of specialized suppliers and buyers in a region

25. © 2013 Cengage Learning. All rights reserved. ACQUIRING AND NEUTRALIZING LOCATION ADVANTAGES When one firm enters a foreign country through FDI, competitors are likely to increase FDI in order to acquire or neutralize location advantages. Why?

26. © 2013 Cengage Learning. All rights reserved. THE BENEFITS OF INTERNALIZATION  Replaces external market relationship with single organization (the MNE) spanning both countries—owning, controlling, and managing.  Reduces cross-border transaction costs.

27. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

29. © 2013 Cengage Learning. All rights reserved. BENEFITS AND COSTS OF FDI TO HOST COUNTRIES Benefits 1. Capital inflow 2. Technology spillovers 3. Advanced management know-how 4. Creates jobs Benefits 1. Capital inflow 2. Technology spillovers 3. Advanced management know-how 4. Creates jobs Costs 1. Loss of economic sovereignty 2. Loss of domestic firms 3. Capital outflow Costs 1. Loss of economic sovereignty 2. Loss of domestic firms 3. Capital outflow

30. © 2013 Cengage Learning. All rights reserved. BENEFITS AND COSTS OF FDI TO HOME COUNTRIES Benefits 1. Repatriated earnings from FDI profits 2. Increased exports 3. Learning via FDI from operations abroad Benefits 1. Repatriated earnings from FDI profits 2. Increased exports 3. Learning via FDI from operations abroad Costs 1.Capital outflow 2. Job loss Costs 1.Capital outflow 2. Job loss