International Business Actions Internationalisation T.docx

International Business: Actions
Internationalisation Theories and Practices (I)
Business College
School of Management
Key Questions
What approaches to global strategy do firms take?How do
organisations internationalise? How does international business
manage its internal operations globally? How does international
business manage its external operations (e.g. relationship with
the host country/communities)?
Key Learning ObjectiveThis session will help you to understand
the concepts of:
1) Michael E. Porter’s Diamond Model
2) Global Strategy – Ghosal & Nohria Matrix
3) Born Global Concept
Michael E. Porter’s Diamond ModelPorter argues that nations
can create factors that promote competitive advantage of
nations as well as stronger level of FDI.
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Examples of National competitive AdvantagesAbundant, low-
cost labor in ChinaMass of IT workers in IndiaHuge reserves of
bauxite in AustraliaAbundant agricultural land in the USAOil in
Saudi Arabia
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Michael E. Porter’s Diamond Model
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Michael Porter’s Diamond Model:
Sources of National Competitive Advantage
Firm strategy, structure, and rivalry – the presence of strong
competitors at home serves as a national competitive advantage
Factor conditions – labour, natural resources, capital,
technology, entrepreneurship, and know how
Demand conditions at home – the strengths and sophistication
of customer demand
Related and supporting industries – availability of clusters of
suppliers and complementary firms with distinctive

competences
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Industrial ClustersA concentration of suppliers and supporting
firms from the same industry located within the same
geographic area
Examples include: the Silicon Valley, fashion cluster in
northern Italy, pharma cluster in Switzerland, footwear industry
in Pusan, South Korea, and the IT industry in Bangalore, India
Can serve as a nation’s export platform
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National PolicyProactive economic development plan enacted
by the government to nurture or support promising industries
sectors. Typical initiatives:
Tax incentives
Investment incentives
Monetary and fiscal policies
Rigorous educational systems
Investment in national infrastructure
Strong legal and regulatory systems(Examples: Japan, Dubai,
and Ireland)

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Activity 1: Diamond ModelPlease discuss the concept of
Porter’s diamond model and apply it to one industry in one
country.
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Bartlett and Ghoshal’s Model of Internationalization Strategy
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Source: Adapted from Bartlett and Ghoshal (1991)., Managing
Acrocc Border, Harvard Business Press.
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International strategyCreate value by transferring valuable core
competencies to foreign markets that local competitors
lack.Centralise product development functions at homeEstablish
manufacturing and marketing functions in local country but
head office exercises tight control over itLimit customization of
product offering and market strategy
Strategy effective if firm faces weak pressures for local
responsive and cost reductions
Multidomestic strategyMain aim is maximum local
responsiveness.Customize product offering, market strategy
including production, and R&D according to national
conditionsGenerally unable to realize value from experience
curve effects and location economies.Possess high cost
structure.
Global strategyFocus is on achieving a low cost strategy by
reaping cost reductions that come from experience curve effects
and location economies.Production, marketing, and R&D
concentrated in few favorable functions.Market standardized
product to keep cost low.Effective where strong pressures for
cost reductions and low demand for local responsiveness.
Transnational strategyTo meet competition firms aim to reduce
costs, transfer core competencies while paying attention to
pressures for local responsivenessGlobal learning
Valuable skills can develop in any of the firm’s world wide
operations
Transfer of knowledge from foreign subsidiary to home country,

to other foreign subsidiariesTransnational strategy difficult task
due to contradictory demands placed on the organization
Example : Caterpillar
Activity 2: IB Strategies in Action
In your team, please select one MNC and discuss their strategy
and identify which of the 4 strategies that best suits your
company. Why? What are the advantages and disadvantages of
the strategy?
Born Global
The ‘Born Global’ concept was coined in a survey for The
Australian Manufacturing Council by the McKinsey Consultants
In Australia, a new breed of exporting companies, which
contributed substantially to the nation's export capital, was then
emerging. The creation of these exporters though not unique to
the Australian economy, reflects 2 fundamental phenomena of
the 1990s:
1.Small is beautiful
2.Gradual internationalization is dead
Born GlobalAmongst the Born Global firms, in Australia, there
are several high-tech firms, but the typical firm uses well-
known technology.
These firms have experienced higher growth rates than other
industries in Australia and a large growth in their export
compared to their home-market sales.
A major factor in the explanation of the Born Global
phenomenon (McKinsey & Co., 1993) is the management’s

commitment to internationalization.
Another major factor is the firm’s ability to standardize
production, marketing, etc. in a global niche instead of
developing customized products.
Factors Supporting ‘Born Global’Dramatic increases in speed,
quality and efficiency of international communication and
transportation have reduced the transaction costs of
multinational interchange.Increasing homogenization of many
markets in distant countries has made the conduct of
international business easier to understand by
everyone.International financing opportunities are increasingly
available.Human capital is internationally mobile.
Activity: Born Global
[Synthesise]In your team, please select 1 company that is
considered ‘Born Global’ and identify factors promoting the
company to become a ‘born global’ company.
ReferencesGhoshal, S., & Nohria, N. (1993), “Horses for
courses: Organizational forms for multicultural corporations”,
Sloan Management Review, Winter 1993, pp. 27, 31.
Johanson, J., Vahlne, J.-E. (1977), "The internationalization
process of the firm – a model of knowledge development and
increasing foreign market commitments", Journal of
International Business Studies, Vol. 8 No.1, pp.23-32. Madsen,
T.K., Servais, P. (1997), "The internationalization of born
globals: an evolutionary process?", International Business

Review, Vol. 6 No.6, pp.551-81. Oviatt, B.M., McDougall, P.P.
(1994), "Toward a theory of international new
ventures", Journal of International Business Studies, Vol. 25
No.1, pp.45-64. Oviatt, B.M., McDougall, P.P. (1995), "Global
start-ups: entrepreneurs on a worldwide stage", Academy of
Management Executive, Vol. 9 No.2, pp.30-44.
Future Reading
Anderson, Erin and Hubert Gatignon. 1986. Modes of Foreign
Entry: A Transaction Cost Analysis. Journal of International
Business Studies, 17: 1-26.
Kogut, B. and H. Singh. 1988. The effect of national culture on
the choice of entry mode. Journal of International Business
Studies, 19: 411-432.
- Hennart, J.-F. and Y.-R. Park. 1993. Greenfield vs.
acquisition: The strategy of Japanese investors in the United
States. Management Science, 39(9): 1054-1070.
- Hennart, J. F., and Reddy, S. 1997. The Choice Between
Mergers/Acquisitions and Joint Ventures: The Case of Japanese
Investors in the United States. Strategic Management Journal
18: 1-12.
- Barkema, H. G. and Vermeulen, F. 1998. International
Expansion Through Start-up or Acquisition: A Learning
Perspective. Academy of Management Journal 41: 7-26.
- Brouthers, K. D. and Brouthers, L. E. 2000. Acquisition or
Greenfield Start-up? Institutional, Cultural and Transaction
Cost Influences. Strategic Management Journal 21: 89-97.

International Business: Actions
Internationalisation Theories and Practices (I)
Business College
the concepts of:
1) Foreign Direct Investment
2) Key internationalisation theories – Uppsala Model
3) Dunning’s OLI Paradigm
Key Questions
What approaches to global strategy do firms take?How do
organisations internationalise? How does international business
manage its internal operations globally? How does international
business manage its external operations (e.g. relationship with
the host country/communities)?
Internationalisation?What factors are driving the
internationalisation processes of these companies?
BHP Expansion and Pacific Brands Offshoring
http://www.youtube.com/watch?v=TiaNjJNIDkg
http://www.youtube.com/watch?v=BpiC-FSid7w

WHY HAVE AN INTERNATIONALISATION STRATEGY?
Ghoshal (1987)Becoming multinational to search a competitive
advantage:
National differences: Exploiting national differences in factor
costs
Scale Economies
Scope Economies
FOREIGN DIRECT INVESTMENT 1 – How does it work?
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Foreign Direct Investment (FDI)An investment into production
or business in a country by a company in another country, either
by buying a company in the target country or by expanding
operations of an existing business in that country (Kelly, 2011).
an investment in controlling and managing value-added
activities in other countries (Peng and Meyer, 2012).
an investment made to acquire lasting interest in enterprises
operating outside of the economy of the investor (UNCTAD,
2009).
Activity 1: FDI in Africa Please watch this clip
https://www.youtube.com/watch?v=jofzYoAqbsw

And discuss ‘why FDI in Africa has been growing
continuously?’
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MNCs and FDIZara would not be an MNC if it manufactured all
its clothes in Spain and exported them around the world. Zara
became an MNC only when it started to directly invest abroad,
for instance in shops and distribution centres in Australia, Japan
or Singapore (Peng and Myer, 2012).
What is the major concern of 506 executives wanting to invest
in India? Why is this important to the internationalisation of
your business?
Source: UNCTAD, 2012
Between 2007 and 2011, a total of 1,243 foreign direct

investment (FDI) projects were recorded in Australia from 933
companies. This represents an average annual growth rate of
15.4 per cent with a total capital investment of US$122 billion.
Greenfield investments accounted for 84.8 per cent of projects
over this five year period.
(Brisbane Marketing, 2012)
FDI in Australia
(Source: ABS, 2011)Industry$Million% share of total
FDIMining151,06531.9Manufacturing88,48118.7Finance67,653
14.3Wholesale and Retails44,5009.4Transport and
Communication43,3315.3
Statistics – FDI INFLOWS:
FDI and its relationship with Internationalisation

Statistics – FDI OUTFLOWS: UNCTAD (2009)
FDI…Poison or Panacea?FDI allows money to freely go to
whatever business has the best prospects for growth anywhere
in the world.
Investors receive additional benefits. Their risk is reduced
because they can diversify their holdings outside of a specific
country, industry or political system.
The standard of living in the recipient country is also improved
by higher tax revenue from the company that received the
foreign direct investment. Too much foreign ownership of
MNCs can be a concern, especially in industries that are
strategically important.
The risk factors are always the major concern among MNCs.
Activity 2: Actors in FDI
Please watch this story from the Villar Mir group, a French
company in Spain and identify (1) ‘actors’ in Foreign direct
investment and (2) key issues for the management team of an
MNC prior to the decision to embark on the FDI in the new
country.
http://www.youtube.com/watch?v=5vA6rzUyyu4

INTERNATIONALISATION THEORIES
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School/Department/Area
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School/Department/Area
Literature on MNCs and InternationalisationMainstream MNC
Theories
After the Second World War, the rapid development of MNCs
and their FDI caused widespread interest among Western
scholars. They adopted different research methods and created
basic assumptions towards different research objects, and
consequently created various MNC theories.
The Uppsala Model
The basic information: it developed by Johanson &
Wiedershiem-Paul in 1975 at Uppsala University.
Complemented by Johanson & Vahlne in 1977.
Empirical bases:
Four Swedish Companies: Volvo, Sandvik, Atlas Copco, and
Facit
The model was made in accordance with the entry form and the
choice of the market of these Swedish firms.
The main description:
The Uppsala model is a theory that explains how firms
gradually intensify their activities in foreign markets.

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The Uppsala Internationalisation Model Swedish manufacturing
companies begin their internationalisation process by
establishing in the Nordic countries.
According to the stage model the Swedish researchers stressed
that Swedish manufacturing companies began to operate abroad
in a nearby market and then slowly penetrated markets far away.
This model was developed in the 1970s and has lately been
criticised for no longer being relevant.
The Uppsala Model
Market Knowledge
Market Commitment
Commitment Decision
-General KnowledgeMarketing methodsCommon characteristics
of customersBusiness CultureClimate, customer firms personal
-Amount of resources

-Size of investment (marketing, organisation)
-Degree of commitment
-Alternative use for the committed resources and transferring
them into the alternative one
-Perceived opportunities and problems in a specific market
-The economic effect
- Psychic Distance
The Uppsala Model
Source: Johanson & Vahlne (1977)
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The Uppsala ModelA basic assumption of the model is that lack
of knowledge about foreign markets is a major obstacle to

internationalization, but that this obstacle can be overcome
through learning about foreign market conditions.
The firm’s own current operations are the main source of this
kind of learning. In turn, this reasoning leads to a second
assumption of “learning by doing” (cf. Lindblom, 1959; and
Johnson, 1988). Investment decisions and actual investment
commitments are made incrementally as uncertainty is
successively reduced.
The more the firm knows about a foreign market, the lower the
perceived market risk will be and, consequently, the higher the
actual investment by the firm in that market tends to be.
CriticismsThe Uppsala internationalisation model has been
criticized as deterministic (Reid, 1981) and, if firms were to
develop in accordance with the model, individuals would then
have no strategic choices (Andersson, 2000).
Another bigger challenge is that today many firms simply do
not follow the traditional pattern of internationalisation
proposed by stage theory. Some firms are international from
their birth and have been called: international new ventures
(Oviatt and McDougall, 1994, 1995), born global (Madsen and
Servais, 1997), and global start-ups (Oviatt and McDougall,
1995).
Activity 3: Uppsala Model in Context
[Evaluate]Please discuss the concept of Uppsala model in your
team and list 3 factors that may change the application of the
model in modern international business. Do you think it is still
an effective model? Can you think of any industry where it still
may apply? What has changed this?

DUNNING’s Electic Paradigm –
Why do firms become multinational?
One of the dominant frameworks for explaining the existence of
MNCs and the determinants of FDIO = OwnershipL = LocationI
= Internalisation
*Note: The modern paradigm of OLI is well discussed in
Dunning and Lundan (2008), Institutions and the OLI paradigm
of the Multinational Enterprise, Asia Pacific Journal of
Management, 25:573-593.
OwnershipThe firm that invests abroad has a competitive
advantage (to exploit) and out-compete the firms that operate in
the country where the investment is done.
Economies of scale connected to large-sized company
Possess technologies that give an advantage on the subsidiary
abroad
Monopolistic advantages in terms of priviledged access to
inputs or outputs markets
Skills of management
LocationAdvantages of the foreign location:
Different nations have different factor endowments:
Natural resources
Cheap labour force
Skills and capabilities
Country characteristics (political stability, regulations, cultural
distance)

Bolivia happens to possess up to 54% of the world's Lithium
deposits
Underneath the salt lies the world's largest lithium reserves
Internalisation
NOTE: Internalisation NOT Internationalisation
Internalisation occurs when a firm expands its operations in
another country, by acquiring the property of the assets that are
abroad Ownership of foreign assets more convenient than the
marketWhy?
Information asymmetries (transaction costs can be too high) ->
Market failures
Keeping skills and capabilities internal to the firm
Future Reading
Anderson, Erin and Hubert Gatignon. 1986. Modes of Foreign
Entry: A Transaction Cost Analysis. Journal of International
Business Studies, 17: 1-26.
Kogut, B. and H. Singh. 1988. The effect of national culture on
the choice of entry mode. Journal of International Business
Studies, 19: 411-432.
- Hennart, J.-F. and Y.-R. Park. 1993. Greenfield vs.
acquisition: The strategy of Japanese investors in the United
States. Management Science, 39(9): 1054-1070.
- Hennart, J. F., and Reddy, S. 1997. The Choice Between
Mergers/Acquisitions and Joint Ventures: The Case of Japanese

Investors in the United States. Strategic Management Journal
18: 1-12.
- Barkema, H. G. and Vermeulen, F. 1998. International
Expansion Through Start-up or Acquisition: A Learning
Perspective. Academy of Management Journal 41: 7-26.
- Brouthers, K. D. and Brouthers, L. E. 2000. Acquisition or
Greenfield Start-up? Institutional, Cultural and Transaction
Cost Influences. Strategic Management Journal 21: 89-97.
BUSM 1222 International Business –Marking Rubric for Essay
How does international business achieve its internationalization
objectives in the contemporary context?
Not achieved
Basic
Competent
Proficient
Excellent
1) Overview of organization & its MNC status and international
objectives in regards to vital company statistics, industrial
products and countries in which it operates in.
0
Not achieved
2
Key aspects of the company were missing so that it did not
provide for a solid base for analysis and evaluation further on in
the report.
3

Very little vital company statistics, its internationalisation
objectives, industrial products and countries in which it
operates were covered, linked to internationalisation strategies
or linked to the target market.
4
A few vital company statistics, its internationalisation
objectives, industrial products and countries in which it
operates were considered missing or not linked to the
internationalisation strategies of the firm or the target market.
5
Vital company statistics, its internationalisation objectives,
industrial products and countries in which it operates in were
fully covered and linked to the firm’s internationalisation
strategies and the target market.
2) Analysis of the internationalization process using
internationalisation theories in academic sources and in class.
0
Little or no analysis in this essay
2
The analysis was rudimentary at best. There was no clear
connection between the organization’s actions in the
international context and the relevant literature.
3
The actions of the organization were described and there was
some reference to relevant literature. However the links

between the literature and the actions of the organization in the
international context were tenuous or were to narrow in angles
examined.
4
Key aspects of the literature were applied to the actions of the
organization. The literature was effectively used to analyse the
key internationalization issues.
5
Evidence of creative insight and originality in terms of
comprehension, application and analysis and at least some
synthesis of the international context and the actions of the
organization in a broad range of aspects.
3) Evaluation:
You were required to evaluate the actions of the organization.
0
Not completed
2
This section was superficial. The lessons learned and/or the
insights were only a summary of the analysis. Claims were not
supported with evidence
3
While the evaluation of the organization’s actions was
completed it was largely descriptive, but had some
recommendations for the improvement of the firm’s
internationalisation process. It is important to use evidence to
support claims. A higher grade would have been achieved if
you had used the experiences of the organization to articulate
some insights into the international business environment.
4
The evaluation was well done with the actions of the
organization critically evaluated and suggested improvements
identified. More could have been made of your analysis of the
organization – the analysis provided you with an opportunity to
articulate insights about the international business environment

more generally.
5
This evaluation was exceptionally well executed. The
evaluation of the organization was based on the evidence
(actions and literature). It also summarised the analysis and
gave recommendations for the improvement of the company’s
internationalisation process. You demonstrated a capacity to
apply the lessons learnt to the broader international business
environment.
4) Country Analysis
0
The analysis was vaguely and poorly done (such as Generic
SWOT/PESTEL).
2
The analysis was superficial. Some information were
incorporated but not clearly related to the industry.
3
Some key socio-cultural factors were used but and links with
the industry and MNC well.
4
Strong focus of key country factors. Essential indicators are
used to analyse the country.
5
Excellent analysis of the country. Key IB theories and
indicators are incorporated in the analysis.
5) Quality of information
0
Poor in quality and not relevant information.
2
Some relevant information but lack of variety (i.e. focusing on
website)
3
Some key information were used. However, the links between

literature and information were not clearly drawn.
4
Relevant information from various sources. Links between
literature and information were made.
5
Excellent, updated and relevant information from key academic
journals in IB, news, reliable websites, strong links between
literature and information.
6) Incorporation of international business theories
0
No IB theories are used to form arguments.
2
IB theories are used but not directly related to the analysis.
3
Some IB theories were used and show some links with the
analysis.
4
The links between IB theories were clearly made. IB theories
were appropriate with the analysis.
5
Excellent incorporation of IB theories to the case. Relevance of
IB theories is strong.
7) Reflections (Lessons Learnt)
0
Reflections do not relate with the essay
2
Reflections were poorly written and show no strong links with

the essay.
3
General reflections were made and concluded. Weak links
between reflections and essay.
4
The links between reflections and essay were clearly
highlighted. Strong points were made under lessons learnt.
5
Strong articulation of key lessons learnt from this essay. Links
with international business were made.
8) Writing, clear succinct sentences & well-structured
paragraphs
0
Very poorly constructed sentences and paragraph. Many
spelling and grammar mistakes.
2
The writing and lay out of this essay was basic at best.
Paragraphs were not well structured and the essay lacked
coherency. It would have benefitted from a good edit. Spelling
and grammar needed to be substantially improved.
3
While the overall structure was evident the links between
sections and paragraphs were weak.
Editing and proof reading would have improved this essay.
Check paragraphs for clarity of purpose.
4
This essay was clearly organised and the arguments well
developed. The links between the organization, the

internationalization process and the literature were clearly
highlighted. Minor editing would have improved this essay.
5
Very well organised with clear, well developed arguments. The
literature was very well integrated.
9) Referencing & use of sources
0
No references, one reference, all references lack academic
credibility or very poorly done.
2
A limited number of sources were used or were not considered
academic in nature.
Significant errors were made. The sources were not related to
the argument or analysis.
3
A number of sources were used. While sources were cited they
tended to be plonked on the page without explication or
justification.
4
Generally the sources were properly acknowledged though there
were minor errors or omissions.
5
A good range of sources were used.
All references / citations were completed without error.
10) Overall argument

0
Very weak or incoherent
2
Demonstrated a superficial understanding of the
internationalization process and issues in the international
context, but with very large gaps in evidence and reasoning or
inability to source from academic resources.
3
Competent understanding of the of internationalization process
and an appreciation of some of the main issues though there
were gaps in evidence or reasoning
4
Strong grasp of the internationalization process and an
appreciation of key issues. A more subtle analysis would have
resulted in a higher grade..
5
Evidence of creative insight and originality in terms of
comprehension, application and analysis with at least some
synthesis and evaluation.
Document: Normal.dot
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Save Date: 04/08/2014
Page 3 of 3

BUSM1227: International Business: Entry Modes (II)
Business College
RMIT University
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Key Learning Objectives
This session will help you to understand the concepts of:
1) Internationalisation of business organisations
2) Key international business theories
3) Complexities of choices and approaches in
internationalisation
Aims of the Session:To understand different forms of
internationalisation and market entry.To consider the benefits
and problems of firm internationalisation from different
perspectives.
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Key QuestionsHow do organisations internationalise?

How does international business manage its internal and
external operations when it comes to entry modes for foreign
market?
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Entry Strategies
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Strategic Alliances“When two or more companies from different
countries agree to ENGAGE jointly in business activities.”
“A strategic alliance is a relationship between two or more
entities that agree to share resources to achieve a mutually
beneficial objective. For example, a company manufactures and
distributes a product in the United States and desires to sell it in
other countries. Another company wants to expand its product
line with the type of product the first company creates, and has
a worldwide distribution channel. The two companies establish
an alliance to expand the distribution of the first company’s
product.”
Examples: joint R&D, joint manufacturing, joint sales, joint
service
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Rationale for International Strategic AlliancesPenetrating new
foreign marketsSharing market/marketing costsSharing research
and development costs and risksLaunching a counterattack
against competitorsPooling global resourcesLearning from
partners
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Success Factor for Strategic Alliances
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Activity 1:
Case Study: South African Airways and EtihadPlease read the
case of strategic alliance between Etihad and South African
Airways in early 2015. Then, discuss the following questions:
(http://www.businesstoday.co.ke/news/news/1418640757/etihad
-south-african-airways-strike-double-daily-flights-deal)

What are the key benefits for Etihad and South African airways?
What do you see as potential pitfalls?
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Etihad Airways President and CEO James Hogan (L) with SAA
acting chief executive Nico Bezuidenhout during the signing of
the partnership
Management ContractA management contract is an arrangement
under which operational control of an enterprise is vested by
contract in a separate enterprise that performs the necessary
managerial functions in return for a fee.
Management contracts involve not just selling a method of
doing things (as with franchising or licensing) but involve
actually doing them. A management contract can involve a wide
range of functions, such as technical operation of a production
facility, management of personnel, accounting, marketing
services and training.
RMIT University
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School of Civil, Environmental and Chemical Engineering
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School of Civil, Environmental and Chemical Engineering

Why Management Contract?
Advantages
Low Risk (financial/management)Potential Government
SupportCan be used as a national strategy for skill development
This story can help you to understand rationales behind
MChttp://www.bloomberg.com/news/articles/2011-07-15/spain-
approves-sale-of-aena-management-contracts-for-airports
RMIT University
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DisadvantagesPotential incentive problemPotential adverse
selection problem How do you know the competencies of the
manager?
Turnkey ProjectsIt is a contract under which a firm agrees to
fully design, construct and equip a manufacturing/ business/
service facility and turn the project over to the purchaser when
it is ready for operation for a remuneration.
Why/Why Not Turnkey?
+ Permit firms to specialize in their core competencies
+ Allow governments to obtain designs for infrastructure
projects from the world’s leading companies
+ Technology Transfer
- Company may be awarded project for political reasons
- Can create future competitors
- No long term interests.
RMIT University
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Turnkey ProjectsWhat are the key benefits and challenges of
turn key project? Learn from the story of “Sunda Strait Bridge
Project” from Indonesia
Link:
http://www.thejakartapost.com/news/2011/07/17/financing-
sunda-strait-bridge.html
RMIT University
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Joint VentureA joint venture (JV) is a business agreement in
which the parties agree to develop, for a finite time, a new
entity and new assets by contributing equity. They exercise
control over the enterprise and consequently share revenues,
expenses and assets.
RMIT University
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Joint Venture
ADVANTAGESAccess to partner’s local knowledgeReduction
of concern about overpaymentBoth parties have some
performance incentivesSignificant control over operation
PITFALLSPotential loss of proprietary knowledgePotential
conflicts between partnersNeither partner has full performance

incentiveNeither partner has full control
RMIT University
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Activity 2 International Joint Venture Case StudyPlease read
this IJV case study and answer the following
questions:http://cws.cengage.co.uk/doole5/students/case_studies
/chap_07.pdf
What are the factors that MNCs should consider when deciding
to use an international joint venture as a market entry strategy?
What are the potential benefits and risks in taking this course
of action?
RMIT University
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Greenfield InvestmentA form of foreign direct investment
where a parent company starts a new venture in a foreign
country by constructing new operational facilities from the
ground up. In addition to building new facilities, most parent
companies also create new long-term jobs in the foreign country
by hiring new employees.
Compared to a greenfield investment, a cross-border acquisition
is clearly much quicker and can also be a cost effective way to
obtain technology and/or brand names
Cross-border acquisitions are however, not without pitfalls, as
firms often pay too high a price or utilize expensive financing
to complete a transaction
RMIT University

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Greenfield InvestmentPlease read this information from the
Bulgarian Board of Investment and discuss if Bulgaria should
be considered a place for greenfield investment? Why?
Link: http://bulgarico.com/wp-
content/uploads/2011/02/Bulgaria-The-Right-EU-Location.pdf
RMIT University
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Determinants of Entry Mode StrategiesCountry-specific
knowledgeFirm size: size can be related to commitment and
resourcesFirm experiences Cultural distancePolitical/economic
factorsTacit knowledge and know-howIndustry
growthCompetitors
RMIT University
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DiscussionWhat factors should be consider when it comes to
choice of entry mode? Why?What are the cultural and political-
economy links with entry mode? Please explain.What are the

roles of technology in the choice of entry strategies?
RMIT University
*
International Business: Entry Modes (I)
Business College
the concepts of:
1) Internationalisation of business organisations
2) Key international business theories
3) Complexities of choices and approaches in
internationalisation
Aims of the Session:
To understand different forms of internationalisation and market
entry.To consider the benefits and problems of firm
internationalisation from different perspectives.
*

Key QuestionsHow do organisations internationalise?
How does international business manage its internal and
external operations when it comes to entry modes for foreign
market?
RecapWe looked at the concept of ‘internationalisation’ of
firms and rationale behind their decision-making process.
Advantages and Risks of internationalisation
Modes of EntryOrganisations contemplating foreign expansion
must consider the following:
Which foreign market(s) to enter
Timing of entry
What form of entry to use
What scale of entry to establish
Which mode of entry to adopt
Entry Decision Making Under Uncertainty: Trade-off Between
Flexibility and CommitmentTiming: When is a good time to
enter?
Potential gain from waiting
Cost of delayScale of entry
Small scale: Establish a foothold to learn
Large scale: Acquire first mover advantageSpeed of expansion:
How fast to grow?
Value of learning
Preemption of competitors

Constraints of internal resourcesMode
Some modes have more flexibility embedded
Some modes reduce resource requirements
Which Foreign Markets The choice must be based on an
assessment of a country’s degree of alignment with firm
strategy and likely contribution to revenue and profit
The attractiveness of a country depends upon balancing the
various associated benefits, costs, and risks
These relate to: customer identification, production capabilities,
or financial opportunities
Benefits may relate to: market expansion, production flexibility,
investment opportunity, etc.
Risks may be competitive, political, financial, etc.
RMIT University
*
Timing the Entry‘First-mover advantages’ that may be derived
from entering a market early:
Preempting rivals and capturing demand
Establishing a strong brand name
Building sales volume
Creating ‘switching costs’ for customers and clients
‘First-mover disadvantages’ may derive from:
Pioneering costs that early entrant incurs
Unanticipated political, legal, regulatory etc. risks
Additional costs of entry that may not be recouped before

competition increases and profit margins decline
Scale of EntryLarge scale entry:
Involves ‘strategic commitment’ - a decision with long-term
impact that is difficult to reverse
May lead rivals to rethink market entry
May prompt competitive response from existing playersSmall
scale entry:
Requires limited financial and other resource commitment
Provides time to learn about market
Reduces exposure to risk
Activity 1: International Market Choice Considering concept of
Timing/Scale/Speed, please return to the case of e-retail market
in China and discuss potential success or failure of Walmart e-
retail in China. Why China? What else that Walmart should
consider in this situation?
http://www.youtube.com/watch?v=VThkcxEqa7I
Choice of Market Entry Mode
Modes? Markets? Art? Science?
Entry Strategies
RMIT University

*
Complementarity of Resources
(Source: Peng, 2011)
Local Firm’s ResourcesImitating capabilitiesOlder technology
and know-howCountry-specific marketing expertiseCountry
specific organization skills
MNC’s ResourcesInnovative capabilitiesAdvanced technology
and know-howIndustry-specific marketing
expertiseOrganisation structure and systems
Going it Alone: Export
Export of Goods
MNC
Revenues
Customers
HOME COUNTRY
HOST COUNTRY
Key Export TasksTransportation
- Negotiation
- Coordination between modes and shippersExport licenses and
permissionsCustoms clearingWarehousingFinancing
-Quotes
- Point of transfer (FOB)
- Credit: Risk assessment/letters of credit

- Exchange rate riskRepatriation/ counter-trade
RMIT University
*
Potential Problems for ExportPrice escalationDumping
regulationsFinding local distribution
- Screening
- NegotiationAfter sales supportImitation by importer/failure to
learn local market
RMIT University
*
Going it Alone: Export…producing product and shipping them
to the receiving countries.
AdvantagesLow initial investmentReach customers
quicklyComplete control over productionBenefit of learning for
future expansion
DisadvantagesPotential costs of trade barriers
Transportation cost
Tariffs and quotasForegoes potential location
economiesDifficult to respond to customer needs well
When Is Export Appropriate?Low trade barriersHome
location has cost advantageCustomization not crucial
Import-Export can be influenced by Political Economy

Factors?Look at this story “Iran’s Hospitals Feel Pain of
Sanctions” (http://www.youtube.com/watch?v=t5s4HI_oggw)
RMIT University
*
Licensing Agreement
Local Firm
HOME COUNTRY
HOST COUNTRY
MNC
Licensing of Technology
Fees and Royalties
Licensing Agreement:
granting a foreign entity the right to produce and sell the firm’s
product in return for a royalty fee on every unit sold.
AdvantagesLow initial investment Avoids trade
barriersPotential for utilizing location economiesAccess to local
knowledgeEasier to respond to customer needs
DisadvantagesLack of control over operationsDifficulty in
transferring tacit knowledge
Negotiation of a transfer price
Monitoring transfer outcomePotential for creating a competitor

When Is Licensing Appropriate?Well codified
knowledgeStrong property rights regimeLocation advantage
Franchising: Similar but different from licensing
RMIT University
*
Licensing: Lesson Learnt for International
ManagementThailand’s Local Cola Rivals Giant Brand: What
do you learn from this story?
(http://www.youtube.com/watch?v=rCVcogwHK8M)
RMIT University
*
Activity 2: Licensing Case Discussion You and your team are
the assistant to the CEO of a small textile firm that
manufactures quality, premium-priced, stylish clothing (Italian
Brand). The Italian CEO has decided to see what the
opportunities are for exporting, franschising, or licensing and
has asked you and your team for advice as to the steps the
company should take. What advice would you give the CEO?
Merger and Acquisition

Local Firm
HOME COUNTRY
HOST COUNTRY
MNE
Investment
Profit
Mergers & Acquisitions Defined
• two firms are combined on
a relatively co-equal basis
• one firm buys another
firm
• the words are often used interchangeably even
though they mean something very different
• merger sounds more amicable, less threatening
Mergers
Acquisitions
*
Do Mergers and Acquisitions Create Value?
The Logic
Related M&A Activity
• value creation would be expected due to

synergies between divisions
• economies of scale
• economies of scope
• transferring competencies
• sharing infrastructure, etc.
*
Acquisition:
The purchase of one business or company by another company
or other business entity.
AdvantagesAccess to target’s local knowledgeControl over
foreign operationsControl over own technology
DisadvantagesUncertainty about target’s valueDifficulty in
“absorbing” acquired assets Infeasible if local market for
corporate control is underdeveloped
When Is Acquisition Appropriate?Developed market for
corporate controlAcquirer has high “absorptive” capacityHigh
synergy
Activity 3: Merger and AcquisitionPlease watch this clip on
international merger and acquisition
http://www.youtube.com/watch?v=EKArEQ_8xFM

Then, list factors affecting the success of international merger
and acquisitions.
Potential Issues: Management of Entry Modes
RMIT University
*IssuesCulture ACulture BPlanningRetain business
flexibilityMaintain congruency between the venture and the
state planContractsDetailed, enforceableBrief and
adaptableNegotiationsSequential, issue by
issueHolisticStaffingMaximize productivity; fewest people per
given outputMaximum number of ‘the
community’TechnologyMatch organisation with technical
sophisticationAlways look for the most advanced
technologyProfitsLong-termShort-term but
frequentlyProcessHigh QualityHigh quantityControlReduce
political/economic controls on decision makingAccept
technology and capital but preclude foreign authority
infringement on sovereignty and ideology

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