Lecture Notes - International Business Environment PDF

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Lecture notes, all lectures - International Business

Environment
International Business Environment (Copenhagen Business School)
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Downloaded by Shiva Raj Poudel (20518_shiva@kusom.edu.np)
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International Business
Copenhagen Business School
International Business Environment

1. Globalization
Globalization: The world is growing smaller, the boarders are
disappearing Pros: - Expand revenue by selling all over the world -
Reducing costs by producing in the third world

World Trade Organization: regulates international trade between the
member countries.
International Monetary Fund: loan out money to countries, who trouble
with their exchange balance and balance of payments.
The World Bank: leaning out money to help countries to stability and
growth

United Nations: 1. to maintain international peace and security
2. to develop friendly relations among nations 3. to cooperate in solving
international problems and in promoting respect for human rights 4. to
be a center for harmonizing the actions of nations

Foreign direct investment (FDI): firm invests resources in business
activities outside its home country

Telecommunication, internet and computers to communicate - has been
developed extremely
Transportation technology: improved though jet aircraft, super freighters,
containerization and transshipment (from one mode of transport to
another) = lower costs

Growing "share of world output" by countries: Japan, Thailand,
Malaysia, Taiwan and South Korea. Growing economies: China, India,
Russia and Brazil.
Chinese economy will grow bigger than the US economy. Reasons:
great universities, low labor costs, fluent in English, and they work while
Americans sleep.

Current trend: the world is being more favorable for international
business

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The third world presses the wages in the developed countries ->
exporting jobs to low-wage nations Argument for outsourcing US clothes
jobs to China: Can buy it cheaper, can use more money on other things,
the Chinese's earn more and can buy other American products.

OECD: gap between poor and rich has become bigger, but everybody
got richer
National differences in Political
Economy + 3: Political Economy and
Economic Development
What is international business? Trade between to different countries

What is the difference between domestic and international
business? Uppsala Model 1. Get a partner, start sale abroad 2. Sales
and marketing department 3. Either invest in a M&A or build their own
factory Born global: right from the start a company has operated on
different markets

Political economy: political-, economic- and legal system interact with
each other

Political system: government
• Collectivism (socialism -> family) vs. Individuals (Danes)
• Democratic (government chosen by the people) vs. Totalitarian (one
people make all decisions)

Either collectivism lean toward totalitarianism (collective goals, state
ownership, benefit society rather than individual) & individualism tend to
be democratic ( Denmark: socialistic country: government - high taxes,

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limiting the rights of the individual

Direct democracy: ways of voting
• US: 2 part system
• Germany: vote on parties - and the get seats in the Parliament or
voting direct on a person
Four major forms of totalitarianism exist today
• Communist totalitarianism – found in states where the communist
party monopolizes power
• Theocratic totalitarianism - found in states where political power is
monopolized by a party, group, or individual that governs
according to religious principles
• Iraq
• Tribal totalitarianism - found in states where a political party that
represents the interests of a particular tribe monopolizes power
• Turkey: divided into two parts
• Right-wing totalitarianism - permits some individual economic freedom,
but restricts individual political freedom
• The Philippines; still have the problem in the southern part.
Singapore - health care system, education system, high
incomes, BUT the political rights are very limited

Economical system
• Market economy (demand / supply) vs. Command economy
(government plans good and prices in the country) + Mixed
economies (both free market mechanisms and state ownership)

What is the link between political ideology and economic
systems?

Market system = individualism = democratic = liberalism / capitalism =
low tax level = (US)
Command = collectivism = totalitarianism = Socialism = high tax level =
(Russia before)

Political decisions effects the freedom of the country
• If they give freedom = individualism = Market system
• If they do not = collectivism = Command system

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Mixed system = Mostly used temporary - if politicians decide to help a
company during a crisis

Right wing (totalitarianism) = command or Market system (Depending on
the situation)

Free market economies stimulate greater economic growth,
whereas state-directed economies stifle growth - is it so? State-
directed: do research over industries with could be important later on
(long-term investments) Free economy: Supply/demand -> about profit
(short-term investments)

The Legal System
• Rules that regulate behavior for all parties involved at the market
• Why it is important: 1 expectations, 2 protect you, 3 how is going to
judge you

Deregulation: removing legal restrictions to the free play of markets
Privatization: transfer the ownership of state property into the hands of
private sector

Common law: based on tradition, right to precedent the law, and
custom: UK, US
Civil law: (illegal not to follow the law): based on detailed set of laws
organized into codes: Russia, Germany, France, Japan (most
countries) Theocratic law: based on religious teachings: Saudi Arabia,
Syrian, Iraq (Islam and the Koran)

The United Nations Convention on Contract for the International Sale of
Goods (CIGS)
Ratified by the U.S: and about 70 countries
arbitrary

Property Rights (ejendomsrettigheder)
1 the right to use the good
2 the right to earn income from the good
3 the right to transfer the good to others
4 the right to enforcement of property rights

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Private action: piracy and blackmail, theft Public action: government
bureaucrats, extort income, resources: when the state took away
something from the company e.g. when companies own land and the
state want to build a rail, they just "take" the land. Most corrupted
countries: New Zeeland (2010)

The idea of Foreign Corrupt Practices Act (FCPA) is to make it illegal
for companies and their supervisors to influence anyone with any
personal payments or reward

Intellectual Property: computer software, a screenplay, a music score
or chemical formula (patent, copyrights and trademarks) - Stay away
from countries where intellectual property laws are lax.

Product safety laws: Certain standards to which a product must
adhere
Product liability:
• Holding a firm and its officers responsible when a product causes
injury, death or damage
• Inability laws tend to be less extensive in less developed nations
(liability insurance in the US - makes companies less competitive)

Is it ethical to follow host country standards when product safety
laws are stricter in a firms home country than in a foreign country?
Conclusion: E.g. hours of work per day in developing country: t is legal
in that country, it is normal there, that is the advantage of being in East
Asia e.g. But if you make it better for them - you are a responsible
company. = most there are some laws, which says that Europe not will
import product, which are not produced under certain environment.

Case: How Can Managers Determine a Market’s
Overall Attractiveness?
You are the CEO of a company that has to choose between making a
$100 million investment in Russia or Poland. Both investments promise
the same long-run return, so your choice is driven by risk considerations.
Assess the various risks of doing business in each of these nations.


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Which investment would you favor and why?

Poland:
- Democracy
- Market based
- Small protection – Few EU laws / Property Rights / Liability is the same
in between Europe
- More liberalism/conservative
- Europe as a backup (The European Union)

Russia:
- Totalitarianism
- Command based
- Corruption
- Socialism
- Cultural distance (similarities to the legal system)
- Market size (demand is much bigger)
- High level of protection (protecting their own brands/products)
- Most problems in Russia – another legal system

Question:
Do you want to get the first mover advantage by invest in the Russian
market? Or do you want to make the safe choice and invest in Poland,
where a lot of the other companies are as well?
• Risks

Conclusion:
Poland – seemed easier; economic system – market based
- A part of the European Union
Instability of the Russian government – they have chosen Poland

4. Differences in Culture
Explain what is meant by the culture of a society?

Cross-cultural literacy: how cultural differences across and within
nations can affect the way business is practiced.

Culture: values and norms that are shared among a group of people

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and that when taken together constitute a design for living. (National
level)
• Culture at corporate level - practices:
Values: ideas about what a group believes to be good, right and
desirable. - Respectful for other people
Norms: social rules and guidelines that prescribe appropriate behavior
in particular situations - Folkways: routine conventions of everyday life
(good social manners, eating with the correct utensils) - Mores: norms
with more moral (indictments against theft, adultery, incest and
cannibalism) - Fair profit
Society: refer to a group of people sharing a common set of values and
norms. - Code through use of words, gesturers and objects Nation-
state: "a majority with a common identity and share the same culture"

Identify the forces that lead to differences in social culture?
• Social structure characterized by:
High degree of social stratification and low mobility between
strata/categories* (India -classes/castes) -> In India you are
born into a class in the caste system and it is hard to get out
of that class
Low degree of social stratification and high mobility between
strata (USA - individual) -> You can move upstairs in the US,
get friends with people from other classes *A level or class to
which people are assigned according to their social status,
education, or income
• Religious and Ethical Systems Religion: Shared beliefs and rituals
of the sacred Ethical systems: moral principles/values that are
used to guide and shape behavior
Christianity (Catholic, Orthodox and Protestant): Protestants work
ethic
Incorporated in the legal system
Folkekirken i Grundloven, support from the state
Poland -> the catholic church in the law
US: No religion is supported from the state
Islam (Prophet Muhammad/the Koran): free enterprise, earning
legitimate profit, private property
Hinduism: (India, Sri Lanka, Nepal, Bangladesh), spiritual valued
rather than material achievements

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Buddhism; does not support the caste system
Confucianism
• Language
Spoken; what could be the corporation language? High costs if
you have to translate, hiring people - they have to talk the
language?
Not spoken / Body language:
Personal space: long customary distance in US, small in
Latin America
India: Are you allowed to eat with left or right hand?
• Education
Important competitiveness
• Political philosophy
• Economic philosophy

Identify the business and economic implications of differences in
culture?
• Power distance: accept hierarchies: Low in the US/DK/Sweden, high
in India/Indonesia/Turkey
• Individualism vs. Collectivism: Individual in US/Australia/GB/DK,
collectivism in India/Indonesia/Thailand
• Uncertainty avoidance: a society's tolerance for uncertainty and
ambiguity: High Japan/Argentina/France/Spain/Turkey (everything
has to be safe), low Sweden/DK
• Masculinity vs. Femininity: relationship between gender and work
roles: DK/Sweden/US is feminine, Japan/Mexico/Germany/GB is
masculine
• Confucian dynamism (long-term orientation vs. Short term
orientation): describes societies' time horizon: Short term =
Africa,
• Indulgence vs. Restraint: The essence to which people try to control
their desires and impulses.
• Denmark: 70 = high, we want to enjoy life, and reach our goals,
live our dreams
• Indulgence stands for a society that allows relatively free gratification of basic and
natural human drives related to enjoying life and having fun. Restraint stands for a
society that suppresses gratification of needs and regulates it by means of strict
social norms.
• Social Stratification: All societies are stratified on a hierarchical basis

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into social categories or social strata
Caste system in India
Class system; in the US; born in the top - everything gets easier
250.000 dollars a year = 2 %, the most rich people in the
country. You can split op the US into classes.
Recognize how differences in social culture influence values in the

workplace -> Develop cross-cultural literacy
• International businesses have to employ host-country nationals, build
a cadre of cosmopolitan executives and guard against the dangers
of ethnocentric behavior
• Ethnocentric behavior: judging another culture solely by the values and
standards of one's own culture.
• Coming too late: Asia social network is important, western countries
time is important (in short term orientation, people are oft too late,
so for the western countries that is hard, because time is money).

Outline why the culture of a country might influence the costs of
doing business in that country. Illustrate your answer with
examples. -> Always remember to focus on the COSTS!

• Marketing strategy; have to go local, get to know the culture -> cost of
adaption -> costs of operation in foreign country, how culture drive
differences in the demand / Local adaptation of product
• Class system -> Can be difficult management / manager from another
country could manage in a foreign country.
• Hire/fire people; in collectivism-countries people stay for a long time,
so they don't have to use money on hiring people all the time ->
unions in some countries. In Japan, you stay in one company for
your whole life.

Culture difference is small = less risk / less costs
Big cultural difference = more risks / more costs

Amazon vs. Google
5 Google focus on performances
6 Amazon: Payed for what you have done
7 "There are different ways of doing business"


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Companies have 3 subsidiaries:

Italy:
• Have to learn from Italian market / will lean something different
• Higher coordination costs
• How to behave, how to look, how to communicate,

Germany:
• Social rule: Being punctual,

Singapore
• Relationship, first name
• Celebrate after a meeting - socialize after the meeting
Russia
• Socialize at first, use full surname, formal

Denmark: Handshake vs. Turkey: chess kiss,

Demonstrate an appreciation for the economic and business
implications of cultural change
• Economic process and globalization seem to be two important engines
of cultural change.
• Women in high positions (US/Denmark working on it)
• Japanese is being more individual, own plans
Japan become richer = more individualism (can take care of they own
needs)
Exercise: Hofstede: Middle East and
China
Mellemøsten
Stor magtdistance: kulturen er hierarkisk opbygget, og den ældste mand er øverst i
hierarkiet.
Kollektivistisk: familiens børn bliver opdraget til at indgå i familieforhold og man prioriterer
familien/stammen over individet.
Stor struktureringsbehov: Familiemedlemmerne har pligt til at følge familiegruppens
normer og beslutninger, og hvis man ikke overholder dette er det ikke velanset.
Lille struktureringsbehov: få regler der skal overholdes, da man ikke vil sætte
begrænsninger for handlen.
Maskulinkultur: traditionelle kønsroller.
Femininkultur: de nære forhold prioriteres højt og de stærke hjælper de svage.

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Kina
• Stor magtdistance → ses eks. da man anerkender lydighed overfor familien og det
dominerende kommunistiske parti, og samtidig er det et meget hierarkisk opbygget
samfund
• Kollektivistisk kultur → staten spiller en stor og dominerende rolle, og samtidig
værdsættes lighed. Man ønsker også at oprette harmoni, hvilket er kendetegnet for en
kollektivistisk kultur
• Maskulin kultur → meget konkurrencebetonet, hvilket eks. ses, da man lægger meget
vægt på status og titler.
5. Ethics in International Business
Ethics: refer to accepted principles of right or wrong
Business ethics: right or wrong governing the conduct of business
people
Ethical strategy: a strategy, that do not violate the accepted principles

Understand the ethical issues faced by international businesses
Ethical issues and dilemmas in international business are rooted in the
variations among political systems, law, economic development, and
culture from nation to nation.
• Employment practices: which standards could be used? Host-
countries or home-country's, or something in between
• Human rights:
Freedom of association
Freedom of speech
Freedom of assembly
Freedom of movement
Freedom from political repression
• Environmental pollution
• Corruption
• Moral obligations
Social responsibility: show the right way for companies to act,
social investments as a doctor at the work

Recognize an ethical dilemma
Ethical dilemmas are situations in which none of the available
alternatives seems ethically acceptable.
• Child labor


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Identify the causes of unethical behavior by managers

• Poor personal ethics
• Societal culture
• The psychological and geographical distances of a foreign subsidiary
from the home office
• A failure to incorporate ethical issues into strategic and operational
decision making
• A dysfunctional culture
• Failure of leaders to act in an ethical manner

Describe the different philosophical approaches to ethics
• The Friedman doctrine: states that the only social responsibility of
business in to increase profits, as long as the company stays
within the rules of law.
• Cultural relativism: companies have to adopt the ethics of the culture
in which they are doing business
• The righteous moralist: apply home-country ethics to a foreign
situation
• The native immoralist: If the other companies are not ethical, we
could not be that too = Many moral philosopher cannot agree with
this

Code of conduct:
• Tragedy of common - do not pollute
• Use the high quality material
• Use a certain percent of the profit to invest (support) in the
environment
• Screening business partners; working with human rights?
• Internal and extern moral guidance - follow our morals
• Ethical insurance - some countries are just blamed for the unethical
behavior - and there it is important that they financial support - to
cover the finances that comes along with the blame (situation)

Social entrepreneurship is the attempt to draw business
techniques to find solutions to social problems:
• New trends
• Recycle product and send them to Africa
• Not made to make profit, just to have an break even

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• Like the "Ruby Cup" company
• They control the value-chain; they everyone get payed and have the
right working conditions

Explain how managers can incorporate ethical considerations into
their decision making
8 Favor hiring and promoting people with a well-grounded sense of
personal ethics
9 Build on ethical behavior
10 Make sure that leaders within the business do act ethical
11 Put decision-making processes in place that require people to
consider the ethical dimension of business decisions
Be morally courageous and encourage other to do the same
6. International Trade Theory
Leading merchandise traders: US, China, Germany, Japan, France &
Netherlands
Trans national company = TNC

Multinational company: have internal and external trade
• Internal trade:
• External trade:

Which factors determine share of domestic value added in exports
of a country:
• Size of the economy: Have more suppliers in big countries -> can add
more value/components domestic
US, Japan
• Composition of export: countries with natural resources can add more
domestic value
• Economic structure and export model: countries with processing trade
have higher share of foreign value added trade)

Opening case:
Transatlantic Trade and Investments Partnership (TTIP) = free trade
between the US & European Union (is not a reality, but could maybe be

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a good idea)

What are concern by European citizens about the TTIP
agreement?
• Loss their job though competition / people have to compete
• Have to ship more products -> bad for the environment

Regulation: Different models for the different countries

Understand why nations trade with each other: / How can US and
EU countries benefit from free trade?
• More product for the consumers: some economies are rich in
natural resources while others have relatively little. Trade enables
economies to specialize in the export of some resources and earn
revenue to pay for imports of other goods.
• Increased welfare and growth – specialization and trade allow
countries to gain a higher level of consumption than they would do
domestically and this leads to increased welfare and higher living
standards.
• To gain economies of scale – with specialization and production on a
larger scale than may be possible domestically, a country may be
able to gain more economies of scale. This will lead to lower
average costs and benefit consumers through lower prices.
• Diversity of choice – trade enables us to access goods and services
that we may not be able to produce ourselves. What would be an
example in your country of goods that you can only get through
trade?
• Increased competition – increased global competition may help to
spur domestic productivity improvements and give domestic firms
a better incentive to innovate and improve their products. This will
benefit consumers.

Summarize the different theories explaining trade flows between
nations

Classical models of trade:
Absolute advantage by Adam Smith: countries should differ in their
ability to produce goods efficiently. A country should specialize in

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producing goods in areas where it has an absolute advantage and
import goods in areas where other countries have absolute advantages.
(Lowest labor to produce most)
Landet handler med de varer, hvor det har absolutte fordele i forhold til dets samhandelslande.
Absolutte fordele opnås gennem specialisering og arbejdsdeling. Dette øger produktionen og
samhandlen, hvilket skaber velstand.
Comparative advantage by David Ricardo: It makes sense for a
country to specialize in producing those goods that it can produce most
efficiently, while buying goods that it can produce relatively less
efficiently from other countries - even if that means buying goods from
other countries that it could produce more efficiently itself. - Unrestricted
free trade brings about increase world production , that is, that trade is a
positive-sum game. - Opening a country to free trade stimulates
economic growth, which creates dynamic gains from trade.
Landet skal handle på områder, hvor det har komparative (relative) fordele i produktionen. Landet
skal specialiserer sig i de varer, hvor landet er bedst udrustet af en faktor som f.eks. arbejdskraft,
råvarer.
Som eksempel kan vi sige, at eb dansk arbejder kan producere 2 tons kylling pr. måned – og at en
polsk arbejder kan producere 3 tons kylling pr. måned. En arbejder i Danmark kan med andre ord
kun producere en mængde, der svarer til 67% af, hvad en arbejder fra Polen kan producere i
samme periode. Men når det drejer sig om stål kan den danske arbejder kun producere 2 tons pr.
måned, mens den polske arbejder kan producere 8 tons. Det vil sige at den danske arbejder kun
kan producere 25% af hvad arbejderen fra Polen kan i samme periode. I sådan et tilfælde kan vi
tale om at Danmark har en komparativ fordel ved at producere kylling.
Et land har en komparativ fordel der, hvor det er mindst ringe til at producere en vare. Komparativ
= forholdsvis, relativ. Selv om et land ikke har en eneste absolut fordel, vil det altid have nogle
områder, hvor det er forholdsvis effektiv til at producere.
Neoclassical trade theory -> Differences in technology

The Heckscher-Ohlin theory: argues that the pattern of international
trade is determined by differences in factor endowments. It predicts that
countries will export those goods that make intensive use of locally
abundant factors and will import goods that make intensive use of
factors that are locally scarce. (Based on resources; Labor and capital -
intensive). Can be labor rich or capital rich.
Teorien går i sin enkleste form ud på en situation, hvor to lande producerer to varer og har to
produktionsfaktorer. Her er det ene land relativt rigt på arbejdskraft, og det andet er relativt
kapitalrigt. Fraset disse forskelle er landene ret ens, de har homogene varer, samme priser på de
to varer ved handel og endda samme teknologi. Sammenligningen mellem disse landes
”rigdomme” sker i relative termer, det vil sige det ene land er rigt på arbejdskraft (relativt til kapital)
og det andet land er rigt på kapital (relativt til arbejdskraft), så intet af de to lande kan være både
arbejds- og kapitalrigt. Da et land producerer og eksporterer de varer, som kræver en stor andel af
den produktionsfaktor, kapital eller arbejde, som landet er rigt på, har det en komparativ fordel.
Dette indebærer, at eksport af arbejdsintensive varer vil ske fra lande med relativt stor arbejdskraft,
mens lande med relativt stor kapital vil eksportere kapitalintensive varer ifølge Heckscher-Ohlin-
teorien.

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The product life-cycle theory: suggest that trade pattern are
influenced by where a new product is introduced. In an increasingly
integrated global economy, the product life-cycle theory seems to be
less predictive than it once was.
Linders efterspørgselsteori: Ifølge Linder vil det være stor handel med varer mellem lande, hvor
der er nogenlunde ensartede efterspørgselsforhold/kort miljøafstand. Vi samhandler altså med
lande, der minder om vores eget.
New Trade Theory: states that trade allows a nation to specialize in the
production of certain goods., attaining scale economies and lowering the
costs of producing those goods, while buying goods that it does not
produce from other nation that are similarity specialized. By this
mechanism,, the variety of goods available to consumers in each nation
is increased, while the average costs of those goods should fall. - Do
also state that in those industries where substantial economies of scale
imply that the world market will profitably support only a few firms,
countries may predominate in the export of certain products simply
because they had a firm that was a first mover in that industry. - Some
new trade theorists have promoted the idea of strategic trade policy. The
argument is that government, by the sophisticated and judicious use of
subsidies, might be able to increase the chances of domestic firms
becoming first movers in newly emerging industries. (Increase
productivity)
• Explain export in the same industries
• External economies of scale: Education; produces benefits for other
firms. e.g. the auto-motive industry
• Dumping prices!
Krugman og New Trade Theory: Samhandel giver et større marked og øget efterspørgsel fra nye
forbrugere med nye præferencer. Det giver øget produktion, hvilket giver virksomhederne mulighed
for at udnytte stordriftsfordele.
Porter's theory of national competitive advantages: (Porter's
Diamond) suggest that the pattern of trade is influenced by 4 attributes
of a nation: 1. Factor endowments 2. Domestic demand conditions 3.
Related and supporting industries 4. firm strategy, structure and rivalry

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Arbejdskraft. Arbejdsstyrken som produktionsfaktor gør sig speciel gældende som basal
produktionsfaktor for Afrika og er derfor centreret omkring den primære sektor.
HDI er i stigning, indikere øget sundhed, uddannelse og indkomst.
Fysiske ressourcer. Afrika eksporterer især olie, mineraler, metaller, ædelstene, andre
råstoffer og en lille del uforarbejdede landbrugsvarer. Landets klima er usikkert i forhold til varme
og regntid.
Vidensressourcer. Udviklingen i de afrikanske vidensressourcer er positiv men langsom, da det
tager tid at opbygge et velfungerende uddannelsessystem.
Kapitalressourcer. De afrikanske lande er ikke særligt godt udrustet med kapital, hvilket
kompenseres med FDI fra Kina og Indien.
Infrastruktur. Infrastrukturen i Afrika er i forbedring, hvilket skyldes udenlandsk investering i
landet, dog er transportsystemet herunder motorveje, jernbaner, lufthavne mv. stadig svagt
udviklet. Landet kommunikationssystem herunder telefon- og postvæsen, internetforbindelse mv.
er også underudviklet. Ligeledes er landets sundhedsvæsen svagt sammenlignet med den vestlige
verden.
Infrastrukturen trænger i høj grad til at blive udbygget selvom der de seneste år sket forbedringer
på dette område. Inddrag at Kina og Indien investerer stort i Afrika.
Konklusion: Samlet set i forhold til Porters Diamant er billedet blandet, idet de afrikanske lande
har et godt udgangspunkt med henhold til en basal arbejdsstyrke og fysiske ressourcer, men har
store mangler på de øvrige forhold. En positiv udvikling i afrikansk økonomi fordrer derfor en kraftig
udvikling på de manglende forhold, således at Afrika kan udnytte sit fulde potentiale i den globale
konkurrence.
Recognize why many economists believe that unrestricted free
trade between nations will raise the economic welfare of countries
that participate in a free trade system

1.2. Forklar, hvorfor traditionelle handelsteorier oftest er bedst til at forklare samhandelen mellem
meget forskellige lande og derfor en samhandel som præges af meget forskellige varegrupper.
Traditionelle handelsteorier: Meget forskellige lande har forskellige potentialer/specialer – de
forskellige lande ønsker at handle med hinanden for at få flere varer i landet. Det øger altså

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samhandelen, produktionen og velstanden i begge samfund. Med andre ord opnår begge lande en
gevinst af at specialisere sig i hver sit, eller det de er relativ bedst til.
Forklar ligeledes, hvorfor nyere handelsteorier oftest tilbyder en bedre forklaring på handel mellem
lande, som ligner hinanden meget – kom ind på begrebet intra-branche eller intra-industriel
handel.
I dag består størstedelen af verdenshandlen af sammenlignelige produktion mellem
sammenlignelige lande, også kaldet intra-branche handel – men hvordan kan det forklares. Jo,
forbrugerne spiller en stor rolle i udvekslingen af disse sammenlignelige varer. Forbrugerne har
forskellige præferencer (Krugman) – de elsker at kunne vælge mellem forskellige varianter af den
samme vare. Tag f.eks. bilmærker: Audi, Mercedes, Citroen, Volvo, Fiat osv. De samme typer af
varer eller tjenesteydelser både importeres og eksporteres. Den korte miljøafstand mellem disse
sammenlignelige lande, gør det også nemmere for virksomhederne at bevæge sig ud på
eksportmarkedet og forbrugerne i landene med en kort miljøafstand (Linder) er kun ”sultne” efter
flere mærkevarer. På grund af den kort miljøafstand bliver markedet altså større for
virksomhederne og dermed også efterspørgslen. Det øger produktionen og skaber vækst i
samfundet. Ved at virksomhederne opnår en øget produktion, giver det dem også mulighed for at
opnå stordriftsfordele (Krugman).
Explain the arguments of those who maintain that government can
play a proactive role in promoting national competitive advantage
in certain industries:
Firms involved in international business trade can and do exert a strong
influence on government policy toward trade. By lobbying government,
business firms can promote free trade or trade restrictions.

Some new trade theorists have promoted the idea of strategic trade
policy. The argument is that government, by the sophisticated and
judicious use of subsidies, might be able to increase the chances of
domestic firms becoming first movers in newly emerging industries.

Understand the important implications that international trade
theory holds for business practice:
Theories of international trade are important to an individual business
firm primarily because they can help the firm decide where to locate its
various production activities.

Case about Zara & Primark:
• Regulatory crisis
• Tariff; not a problem for Zara with higher prices
• Zara only have European suppliers; so there are not put import-taxes
on.
• Primark have suppliers in China, there will come more competitions,
Primark would be a competitor with all Chinese textile companies.
Opportunity - can benefit if they start selling in China, where their

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production is.
• Economic crisis:
7. The political economy of International
Trade
Identify the policy instruments used by governments
to influence international trade flows:

Trade barriers:
• Tariff: taxes levied on imports that effectively raise the cost of
imported products relative to domestic products (tax to put on
foreign goods imported into Denmark)
Specific tariff: levied as a fixed charge for each unit of a good
imported
Ad valorem tariffs - levied as a proportion of the value of the
imported good
•

Economics effects of tariffs

Increase government revenues
Force consumers to pay more for certain imports
Are pro-producer and anti-consumer
Reduce the overall efficiency of the domestic economy

• Subsidies (statsstøtte): government payments to domestic producers
/ to gain economics of scale
Subsidies help domestic producers to
compete against low-cost foreign imports
gain export markets
Consumers typically absorb the costs of subsidies

• Antidumping Policies:
It occurs when manufacturers export a product to another
country at a price either below the price charged in its home
market or below its cost of production
Dumping may enables firms to unload excess production in
foreign markets or may be may be predatory behavior

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Countervailing duties may also be imposed by an importing
country in response to an initial subsidy in the exporting
country

• Import Quotas (importkvoter): restrict the quantity of some good that
may be imported into a country
• Tariff rate quotas - a hybrid of a quota and a tariff where a lower
tariff is applied to imports within the quota than to those over
the quota
• A quota rent - the extra profit that producers make when supply
is artificially limited by an import quota

• Voluntary Export Restraints: quotas on trade imposed by the
exporting country, typically at the request of the importing country’s
government
benefit domestic producers
raise the prices of imported goods

• Local Content Requirements: demand that some specific fraction of
a good be produced domestically
consumers face higher prices
For example: 50 % of a product have to come from the
home-country

• Administrative Policies: bureaucratic rules designed to make it
difficult for imports to enter a country
polices hurt consumers by limiting choice
•
• Standards (tekniske handelshindringer)- specific specification for
product and services (industry/policy regulations)
Sometimes unions have different standards (to protect their
market shares)
Krav til et produkts konstruktion, sammensætning, indpakning, etikettering o.l.
consumers face higher prices

Understand why governments sometimes intervene in international
trade:

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 Political

Protecting certain groups, often at the expense of other groups;
foreign policy, human rights, consumer protection etc.
Who is the interest group?
 Economic

Boosting the overall wealth of a nation

For intervention:
• Necessary to protect jobs, national security (of different kind of
industries), support new industries until they get toehold,

• One response to trade barriers is to establish more production
activities in the protected country
• Business may have more to gain from government efforts to open
protected markets to imports and FDI than from government efforts
to protect domestic industries from foreign competition.

Summarize and explain the arguments against strategic trade
polity:
• Business or customer interest?

Describe the development of the world trading system and the
current trade issue:
First global economy until 1914 Interwar period - protection After WW2
- need for a more international environment After 1979 - present:
Second global economy

After WW2: Bretton Woods Institutions
• IBRD – To reconstruct war-torn countries
• IMF – To create currency convertibility and financial stability
• ITO – To set the rules for global free trade
• Commodity Fund – To stabilize prices for important commodities

From ITO to GATT (General Agreement on Tariffs and Trade) replaced
by WTO in 1994

Explain the implications for managers of developments in the
world trading system:

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Traditional knowledge (through identity, symbols, collectively) can it be
protected by patents?
Patent: to protect knowledge (exclusive right to spread this knowledge
for a time)

Switzerland (host to many global Pharma firms) -> know how to develop
medicine of the African plants
• Maybe they could pay some kind of royalties for using the plants as
solution?

Population in Africa (a group of African countries) -> do have the plants
• Need capacity to create the patent

Why does it matter?
• Ownership issues
Conflicts; home market and host market differences
8. Foreign Direct Investments
FDI: when a firm invests directly in facilities to produce or market a
product in a foreign country.
• Greenfield investment: involves establishment of a new operation in a
foreign country
• Involves acquiring or merging with an existing firm in the foreign
country

Flow of FDI: refer to the amount of FDI in 1 year
Stock of FDI: refers to the total value of foreign-owned assets
Outflows of FDI: the flow of FDI out of a country
Inflows of FDI: the flow of FDI into a country

Foreign Portfolio Investment (FPI)
• An investment in a portfolio of foreign securities such as stocks and
bonds that do not entail the active management of foreign assets.
FPI is "foreign indirect investment"

Recognize current trends regarding FDI in the world
economy:

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• Globalization result in more FDI
• The largest outflow: US, UK, Netherlands, Germany, Japan & France

Explain the different theories of FDI:
Entry mode:
• Export:
Producing goods at home and then shipping them to the
receiving country for sale
• Licensing:
Licensing is the process of leasing a legally protected (that is,
trademarked or copyrighted) entity – a name, likeness, logo,
trademark, graphic design, slogan, signature, character, or a
combination of several of these elements. To pay for it, you
become royalties.
Transaction cost theory: (market imperfections) costs
associated with the price as allocation mechanism /
costs associated with find/working with a partner in
another country
Transaction imperfections - reduce the ability of decision
makers to define the price of the transaction
Making costs:

Bounded rationality:
Finding out information
about a possible partner abroad (
The costs of obtaining information and
verifying a business partner reputation/
capabilities (both more costly and more
time consuming in the international
context)

Opportunistic behavior:
licensing technology to
Italian firm: cannot see what is going on, not
know about they put enough effort into the
production

Asset specificity:
If you are a small company
having a big supplier; you need to buy new
technology specific to the business
relationship
Limitation of licensing based on TCE (transaction costs
of economics):

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Risk of passing on valuable technological know-how to
potential rival foreign firms
If you technology is not protected enough (if you
are afraid that the company copy our
product) I should not produce there
Restricts licensing firm from having tight control
Need to trust and control the firm = make FDI
instead
Management and operation skills may be the main
value added of the product or service by the
licensee (firm’s competitive advantage). Such
capabilities are not amenable or not transferable
via licensing
Licensing vs. FDI:
Look at: What are the costs? Are the transaction cost
too high?
Firms control value-added activities abroad to
internalize TCs
MNCs can organize activities between agents located
in different countries more efficiently than the
market
MNCs can be seen as “cost minimizers” (licensing is
seen as "cost minimizers")
Implications: State policies are inefficient policies:
state-generated imperfections –Internalizing TCs,
MNEs generate a net gain for them and the
society
The eclectic paradigm
Question 1: investigate the following dimensions of FDI:
• Why
• Where: Location
• How: entry mode
Question 2: Theoretical background
• Trade theory
• Transaction cost economics
Question 3:
12 Ownership advantages
Thing necessary for the firm to compete against the competitors

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in the foreign country
Resources/capabilities of the firm that are transferable across
borders (not location-bound)
Know-how, technology, business model, brand name,
codes of conduct, organizational norms and practices
Capabilities of: Innovation, operations, marketing, sales and
distribution, operate functions
• Location advantages
Advantages from operating in specific locations
Market: size, growth, purchasing power, income levels
Resource endowments: Human capital (skilled labor force,
natural resources and agriculture
Agglomeration: Cluster advantages - cluster of potential
customers and suppliers
Institutions:
• Internationalization advantages
From Internalization theory of MNC:
All those benefits associated with organizing activities
internally (within the boundaries of the firm) instead of
using the market

A decision-tree for FDI:
• First step: Do we have some ownership advantages? (my competitive
advantages)
Answer:
NO = stay domestic
Yes = What are your location advantages?
• Second step: Where should the company be located? Be location
specific!
Locate where you can get some benefits like learning.
Are the areas, where I can benefit what I ready have? Or can the
labor I need be found cheaper in another country?
Answer:
No = Export
Yes = look the next step about internalization
• Third step: What is the alternative?
Answer:
No = Go for export, licensing, franchising or joint venture?

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Yes = Subsidiary / FDI

The entry mode should allow for the appropriation/exploitation of
location advantages -> Session 11

• Franchising:
• Joint ventures:
• Subsidiaries (FDI)
•
Motives for FDI:
• Natural resources seeking (in certain locations)
• Market seeking (the country offer strong demand for their products)
• Efficiency (the most efficient locations featuring a combination of scale
economies and low-cost factors)
• Labor, knowledge to become more innovative
• Reducing high transportation costs or tariffs
• Innovation seeking
• Human capital - "global cities" with universities, know-how
• (culture problems need local adapting like the Gramophones in India)
• Attractive culture: want to work like in Vietnam

Knickerbocker's theory:
• Firms operate within an oligopolistic market structure / explain why
firms follow rivals into foreign markets
If one company moves into another market, the rest will follow,
because then they would get part of the first mover
advantages. So that explains why companies invest in the
same countries at the same time = all of them want to get "a
bit of the cake". Strategy: "follow the leader".

Aggressive vs. Defensive FDI:

Aggressive FDI: “first mover investment”, first firm
entering the foreign market gets access to more
favorable conditions than followers which help
reducing costs and to outcompete the rivals
Defensive FDI: rivals react to the fist mover and enter
foreign country

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• Where follow the leader motivated FDI is defensive and reactive, first
mover FDI is proactive and pre-emptive. Horizontal FDI may be a
typical example of the creation of dominance through preemption,
but also vertical FDI may restrict the possibilities of entry for
newcomers by strangling the local supply chain or by forcing
newcomers into prohibitive costly investments in new sales and
distribution infrastructures. While first movers may not always get
full control over the market they enter first, they may still benefit in
a larger competitive game as their first mover investments may
force competitors to prematurely undertake investment in the
location in question (
•
The Uppsala School - The Scandinavian School / The
internationalization process approach
• A theory that explains how firms gradually intensify their
activities in foreign markets.
• Learning by doing things or learning from looking at what others
do/how they act.
• Looking at what we have done earlier, we learn what to do in the
future.

3 key concepts to explain how companies learn:
• Knowledge of foreign markets
• Objective knowledge: something you can buy
• Experiential knowledge: knowledge from an experience you have
done
• Resources commitment to the foreign market
• The amount of resources already invested
• Association with the entry mode
• Psychic distance between home and host countries
• Affect information flows

Two patterns of internationalization:
• Initially firms try to minimize the risks in the beginning, and afterwards
they are more willing to take higher risks.
• Ikea: was first going into Norway (low distance / low resources) - very
equal -> they have learned how to internationalize

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• Afterwards I can invest more; reinvest the profit -> use what they
learned in Norway in etc. Denmark.
• Firms invest in the similar countries before they go into different
countries

• Establishment chain (HOW?): Increasing involvement within the same
country
1 No regular export or other types of international activities
2 Export via a foreign intermediary
3 Establishment of sale subsidiary
4 Production in a foreign country
• Geographical spread: (where): internationalization follows a linear
pattern related to the physic distance between the home and
foreign countries

Conclusion of the model:
• FDI is not only driven by economic factors but also behavioral
perspectives
• Internationalization is a gradual learning process
• Firms tend to invest first in countries that are not too far from their
country in psychic terms, this included cultural, legal, and
institutional environments similar to their own
• As a result of organizational learning and the accumulation of the
experience, firms increase the resource commitment to
foreign markets over time

Understand how political ideology shapes an
government's attitudes towards FDI:
• The radical view:
◦ Home-countries taking money from the host-country without
giving something back (value) to HC

• The free market view:
◦ Comparative advantages - because it increases the overall
efficiency of the world economy
Som eksempel kan vi sige, at eb dansk arbejder kan producere 2 tons kylling pr. måned – og at en
polsk arbejder kan producere 3 tons kylling pr. måned. En arbejder i Danmark kan med andre ord
kun producere en mængde, der svarer til 67% af, hvad en arbejder fra Polen kan producere i
samme periode. Men når det drejer sig om stål kan den danske arbejder kun producere 2 tons pr.

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måned, mens den polske arbejder kan producere 8 tons. Det vil sige at den danske arbejder kun
kan producere 25% af hvad arbejderen fra Polen kan i samme periode. I sådan et tilfælde kan vi
tale om at Danmark har en komparativ fordel ved at producere kylling.
Et land har en komparativ fordel der, hvor det er mindst ringe til at producere en vare. Komparativ
= forholdsvis, relativ. Selv om et land ikke har en eneste absolut fordel, vil det altid have nogle
områder, hvor det er forholdsvis effektiv til at producere.

• Pragmatic nationalism:
◦ In between
◦ FDI brings capital, skills, technology and jobs into the host-
country (advantages), BUT the profit of it goes abroad

Describe the benefits and costs of FDI to home and
host countries: (LOOK PP LECTURE 7)

Host-country benefits from FDI:
• Resource transfer (desperately needed capital in most LDC’s)
◦ home-countries put capital, technology and management
resources into host-country
• Employment creation through Greenfield Investments. (FDI brings new
jobs with into the host-country)
◦ However not all new jobs by foreign firms represent new addition
to the labor pool. Job losses in the same sector may be
greater in some cases (automobile industry in the US, with
Japanese FDI).
◦ Foreign acquisition of local firm may result in labor shedding for
increasing efficiency . On balance, evidence shows that host
countries have gained rather than increased job losses as a
result of FDI.
• Technology transfer (know-how)
• Increase competition and growth, lower prices for local consumers
(Walmart, Carrefour and Tesco have had such effects on local
firms from the same sector to become more competitive).
• Balance-of-Payment Effects: trade deficit; if you import more than you
export (if host-countries can export more through FDI, they can
also import more)

Host-country costs:
• Adverse Effects on Competition: destroy the local companies, because
FDI are more competitive which effects prices

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• Adverse Effects on the Balance of Payments: If the subsidiary in the
host-country has to import many components and then sell their
product in the host-country = they make more import on the
balance than export, which is bad because host-countries often
have to import more in general.
• National Sovereignty and Autonomy: ???

Home country benefits:
• Payment benefits from the inward flow of foreign earnings
• Benefit the balance of payments; if the host-country customers have
demand for the home-country's products -> registered as export
and then they can import other goods
• Benefit when home-countries learn skills from the host-country

Home-country costs:
• Balance of payments suffer in 3 ways
1 Capital outflow required to finance the FDI
2 By importing the products to sell to the home-country's
customers
3 Export direct from the host-country is not helping the export-
payment-balance in home-country

Explain the range of policy instruments that
governments use to influence FDI:

Home-country policies:
• Encouraging (fremme) Outward FDI
◦ Foreign risk insurance
◦ Capital assistance; by having special funds or banks that make
government loans to firms wishing to invest in developing
countries
◦ Tax incentives; eliminated double taxation of foreign income (tax
in both host- and home-country)
◦ Political pressure; pressure to lower restrictions on inbound FDI
• Restricting (begrænse) Outward FDI
◦ Limit capital outflows of concerns -> to improve payment
balance
◦ Tax rules (e.g. tax foreign earnings); to encourage investment at

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home -> make jobs at home
◦ Political pressure

Host-country policies on FDI:
• Encouraging Inward FDI
◦ Tax concessions (skattelettelser)
◦ Low-interest loans (lavt-forrentede lån)
◦ Grant or subsidies (tilskud) like tax breaks, new state spending
on infrastructure
• Restricting Inward FDI
◦ Ownership restraints
• Excluded from specific fields/industries (tobacco, mining) to
protect national security or competition
• Subsidiary must be owned by local investors
◦ Performance requirements (in developing countries)
• Behavior of the MNE's local subsidiary
• As a goal to promote local content, commit to technology
transfer and local participation in top management (e.g.,
The case of IBM in India).

Identify the implications for managers of the theory
and government policies associated with FDI: (LOOK
PP FROM LECTURE 7)

The decision process for making FDI by managers:


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9. Regional economic integration
Regional economic integration: agreement among countries in a
geographic region to reduce and ultimately remove, tariff and non-tariff
barriers to the free flow of goods, services, and factors of production
between each other.

WTO / World Trade Organization: 159 members

Describe the different levels of regional economic integration
• Is about a group of countries reaching an agreement about reducing
tariff (import taxes) + duties and non-tariff barriers.
• Regional trade agreements promote free trade; but the world may be
moving toward situation in which a number of regional trade blocks
competing against each other.

There a different levels of regional economic integration:
• Free trade area/agreement: all barriers are removed, free trade, free
competition, no tariff, quotas, subsidies or administrative
impediments (only free goods and services, but not production
factors like labor, capital etc.
• E.g. NAFTA (North American Free Trade Agreement), EFTA

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(European Free Trade Association)
• A customs union: eliminates trade barriers between member
countries and adopts a common external trade policy (tax %) +
free movement of the factors of production
• E.g. Andean Community
• A common market: Free trade among members, includes a common
external trade policy, but also free move of labor and capital
13 E.g.
• An economic union: free trade, free movement of labor and capital,
same currency, harmonized tax rates, common monetary and
fiscal policy (penge- og finaspolitik), employment policies
• E.g. EU (but all members should have the euro)
• Full political union: On the way, European Parliament

Understand the economic and political arguments for regional
economic integration
Economic:
• Better world production / the best wins / comparative advantages /
more, better goods, lower prices
• Transfer technological, marketing and managerial know-how to host
nations
• Lowering barriers to trade and investments -> increased price
competition / the best wins
• Creating single markets, means many protected markets are now
more open = more investments & export from firms within and
outside -> increase
Political:
• Then countries go together they enhance their political weight in the
world
• A way to secure peace
Impediments:
• Some groups lose: move production to low-cost counties
• Difficult to get all countries to agree on a set of rules
• Give up some degree of control / not every country are ready to do
that
Employees:
• Much more mobility / you can work all over Europe


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Understand the economic and political arguments against regional

economic integration
• Trade unions do not benefit the whole world, only benefit the
members, because of their comparative advantages
• EU make it hard for developing countries to trade with Europe,
because of the non-members have higher tariffs
• Countries may feel they have to give up political rights (monetary and
fiscal policies)
• Bureaucracy for the employees; when you want go to Denmark, you
have to get a CPR-number, security insurances in Germany ->
should be easier

Most known regional economic integrations:
EU, NAFTA, the Andean Community, Mercosur, ASEAN and APEC.

NAFTA: US, Canada and Mexico - free trade, investments etc.
The Andean Community: Bolivia, Chile, Ecuador, Colombia and
Peru: Common market; internal tariff reduction program, a common
eternal tariff, a transportation policy, a common industrial policy and
special concessions for the smallest members (Bolivia and Ecuador)
Mercosur: Brazil, Argentina, Paraguay, Uruguay, Venezuela - customs
union
• Produce cars, buses etc. Inefficiently, could be produced better in
other more "suitable" countries. - External tariff keeps more
competitive competitors out of the market
• ASEAN: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar,
Philippines, Singapore, Thailand and Vietnam
• APEC: 21 member states,
• EAC: Kenya, Uganda and Tanzania + Burundi and Rwanda

EU’s institutioner
• European Commission: Europa-Kommissionen (fremsætter forslag,
administrerer EF-love, initiativet – den udøvende magt)
• European Council/Council of Ministers: Ministerrådet (beslutter –
Den lovgivende magt) / authority - controlling / draft legislation
• European Parliament: Europa-Parlamentet (har medbestemmelse
eller høres kun, 785 pladser) celected of the european citienzes,
making the budget, (have gained more power)

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• Count of Justice: EF-Domstolen / judge (dømmer om brud på
traktaten – Den dømmende magt, 27 dommere) Fortolkningssager:
EU-love har forret frem for de nationale love. Traktatbrud:
Dømmer landet for brud på EU-traktaten.
The single European act: formation of a single market, product
standards, lift barriers
Establishment of the euro: in 1992 by the Maastricht Treaty - used by
17 members = euro-zone

Criteria's to be member/also for current members:
• High degree of price stability
• A count fiscal situation
• Stable exchange rates
• Converged long-term interest rates

Great Britain, DK and Sweden: locked their exchange rates against the
euro, 1999

Benefits from the euro:
• More trade if you do not have to exchange money
• Easier to compare prices across Europe = lower prices though more
competition
• One big market = more competition = more focus on prices and
production within the lowest costs
• Easier to borrow money, because the banks are working closer
together (especially for small countries)
• Easier to invest money in other countries both for individual and
institutions

Costs from the euro:
• National authorities have lost their own currencies and control over
monetary policy
• The European countries economics are un-similar, which makes it
difficult to make an optimal currency area (there you need same
tax-regimes, wage rates, business cycle; what helps Finland,
maybe hurts Portugal

Understand the implications for business that are inherent (build-

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in) in regional economic integration agreements

Opportunities:
• You can serve one similar market though EU or NAFTA
◦ Economics of scale; mass production of a standardized product-
range
◦ But local adaption is still needed
• Location: do you need cheap labor or skilled workers?

Threats:
• Much more competition because the consumers want lower prices ->
need to reduce costs
Creation of fortress??
(10) The Foreign Exchange Market
Function:
• Convert the currency of one country into the currency of another
• Provide insurances against foreign exchange risk

The sport exchange rate = the exchange rate at which dealer convert
one currency into another currency on a particular day

Foreign exchange risk can be reduced by:
• Using forward exchange rates = exchange rate governing future
transactions
• Engaging in currency swaps = simultaneous purchase and sale of a
given amount of foreign exchange for two different value date

The law of one price holds that in competitive markets that are free of
transportation costs and barriers to trade, identical products sold in
different countries must sell for the same price, when their price is
expressed in the same currency.

Purchasing power parity (PPP)
• the price of a basket of particular goods should be roughly equivalent
in each country
• Predicts that the exchange rate will change if relative prices change
• Explains relatively accurate predictions of long-term trends in
exchange rates, but not of short-term movements

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Inflation: seems to be a function of the growth in its money supply
• The rate of change in countries' relative prices depends on their
relative inflation rates.

Interest rates:
• Reflect expectations about inflation (in countries where inflation is
expected to be high, interest rates will be high

The international Fisher effect states that for any two countries, the sport
exchange rate should change in an equal amount but in the opposite
direction to the difference in nominal interest rate.

Exchange rate forecasting (future changes in exchange rates) =
fundamental analysis; money supply growth, inflation rates, nominal
interest rates and balance-of-payments

• In many countries, the ability to convert local currency into a foreign
currency is restricted by government policy - to protect the
country's foreign exchange reserves and to halt any capital flight.
• No convertibility of a currency makes it very difficult to engage in
international trade and investment in the country. One way of
coping with the no convertibility problem is to engage in
countertrade - to trade goods and services for other goods and
services.
• The three types of exposure to foreign exchange risk are transaction
exposure, translation exposure and economic exposure.
• Tactics that insure against transaction and translation exposure
include buying forward, using currency swaps and leading and
lagging payables and receivables.
• Reducing a firm's economic exposure requires strategic choices about
how the firm's productive assets are distributed around the globe.

11. The International Monetary System -
See PP Lecture 8
Opening case:

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• Then you have a crisis in the country, you normally deregulate your
currency. But Greece cannot deregulate, because they are a part
of the euro.
• Problem with their government spending's - the debt crisis. Too much
government spending + lack of competitiveness in the private
sector.

The international monetary system: system that govern exchange
rates
• Two parts
Foreign exchange rates
Balance of-payments adjustments
Gross national product GNP: is the value of all final goods and services
produced by a country's factors of production and sold on the market in
a given year.
Gross domestic product GDP: is the measure of national activity. GDP
equals GNP minus net receipts of factor income from the rest of the
world (ROW).

National Income Accounting:
• A country's GNP is measured by the value of all final goods produced
or purchased.
• Closed economy: Y = C (consumption) + I (investments) + G
(government spending)
• Open economy: Y = C + I + G + X (export) - M (import)

Income identities in an open economy:
• Goods markets
Y = C + I + G + NX (net trade balance)
NX = y - (C-I-G)
• Financial markets
NX = (Y-C-G)-I = S-I
NX = S - I
• Net outflow of goods = net purchases of foreign assets
• S > I international lender
• S < I international borrower
• With government
• NX = (Sprivat - Iprivate) + (Taxes - Government expenses)

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International macroeconomics:
S - I = X - M
Employment Trade flows
Growth Interest rates Capital flows
Government budget Exchange rates
Inflation
Internal balance
External
balance

Definition: Balance of payments (BOP): The BOP is a statistical
record of all the flow of payments between residents of one country and
the rest of the world in a given year.
• Current account balance (CA) The current account is a statistical
record of the trade in goods and services between a country and
the rest of the world:
Goods balance/Service balance – Trade in goods and services
Income balance – Investment income (earnings from direct and
portfolio investments)
Unilateral transfer – Net transfer payments (goodwill)
• Capital account balance (KA)
The capital account is a statistical record of investment flows
between a country and the rest of the world. It records
transactions that result from nonfinancial and financial assets
(both portfolio and direct investment).
• Errors and Omissions (E&O) - Statistical discrepancy
• Official International reserves (∆RFX) The net results of the activities
in the current account and the capital account must be financed by
changes in official monetary reserves.
These accounts reflect changes in
• Reserve assets (gold, foreign currencies, deposits, securities)
• use of credit and loans from the IMF (SDRs)
• liabilities constituting foreign authorities' reserves (changes in private
bank liabilities that are held as foreign exchange reserves by
central banks of other countries, and exceptional financing).


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BOP = CA + KA + E&O - ∆RFX
BOP > 0 = 0 BOP surplus BOP < 0 = BOP deficit

Accounting rules:
14 Transactions with the ROW that earn foreign exchange are
recorded in the BOP statistics as a credit (+).
15 Transactions with the ROW that spend foreign exchange are
recorded in the BOP statistics as a debit (-).
The imports by a U.S. firm of goods from Canada are recorded
as a debit (-) to the U.S. current account.
Purchase of British treasury bonds by a U.S. investor is recorded
as a debit (-) to the U.S. capital account.
Purchase of Euro by the Fed is recorded as an increase in the
official foreign exchange reserves of the U.S. (∆RFX>0).

Floating exchange rate: determined by supply/demand

Fixed exchange rate: a set of currencies fixed to each other (European
Monetary System)

Monetary system: currency

Pegged exchange rate: when a country peg their currency to another
currency like the dollar or the euro
Dirty float: Some countries have pegged their currency to a basket of
other currencies, allowing their currency to fluctuate within a zone
around the basket (the central bank will intervene in foreign exchange
market to make stability)
Fixed exchange rate: a set of currencies fixed to each other (European
Monetary System)

Describe the historical development of the modern
global monetary system:

• The gold standard as monetary standard that pegs currencies to gold
and guarantees convertibility to gold. -> fixed exchange rate
regime
• Broke down in 1930s

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• The Bretton Woods system of fixed exchange rates was established in
1944. The US dollar was the central currency of this system; the
value of every other currency was pegged to its value.
IMF: was established to:
To avoid a repetition of the competitive devaluations of the
1930s
To control price inflation by imposing monetary discipline on
countries.
• The fixed exchange rate system collapsed in 1973, because of
speculative pressure on the dollar
• Since 1973 the world have had a floating exchange rate system
Gives countries autonomy regarding their monetary policy
Facilitate smooth adjustment of trade imbalances

Explain the role played by the World Bank and the
IMF in the international monetary system:

International Monetary Fund (IMF):
IMF har til opgave, at låne penge ud til lande, som har store problemer
med deres valuta- eller betalingsbalance. Disse lande skal leve op til
nogle strenge økonomiske krav, for at få lov til, at låne pengen. Ofte
medfører disse krav, at den fattige del af befolkningen bliver hårdt ramt.
IMF har i dag 180 medlemslande og er underlagt FN. Magten i IMF er
bestemt af landenes økonomiske styrke, dvs. at de rige har langt de
fleste stemmer.
• To avoid a repetition of the competitive devaluations of the 1930s
• To control price inflation by imposing monetary discipline on
countries.

Historisk baggrund:
Etableret umiddelbart efter 2. verdenskrig.
Primært på foranledning af USA -> fordi USA ønskede at kunne sælge
deres varer uden hindringer.
Social tankegang: Liberalisme
Udtryk for en liberalistisk tankegang
Underorganisationer under FN.

The World Bank:

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• Har samme krav og medlemmer som IMF, men verdensbanken låner
penge ud til de fattige lande, som anvender dem til skabe
økonomisk udvikling (bygning af skole, vandingsanlæg,
kraftværker osv.)

Compare and contrast the differences between a
fixed and a floating exchange rate system:

Floating Exchange Rate System:
• The system of exchange rate in which rate of exchange is determined
by forces of demand and supply of foreign exchange market is
called Flexible Exchange Rate System. Here, value of currency is
allowed to fluctuate or adjust freely according to change in demand
and supply of foreign exchange.
• There is no official intervention in foreign exchange market. Under this
system, the central bank, without intervention, allows the exchange
rate to adjust so as to equate the supply and demand for foreign
currency
Monetary Policy Autonomy
high interest rates -> make the currency more worth
PPP theory:
Trade Balance Adjustments
If you import more than you export (make you import
expensive and you export cheaper = balance)
Crisis Recovery; cheaper currency = more export = out if
recession.

Fixed Exchange Rate System:
• The rate is fixed by the government or monetary authority and not
determined by market forces.
• Only a very small deviation from this fixed value is possible. In this
system, foreign central banks stand ready to buy and sell their
currencies at a fixed price.
• A typical kind of this system was used under Gold Standard System in
which each country committed itself to convert freely its currency
into gold at a fixed price.
• In other words, value of each currency was defined in terms of gold
and, therefore, exchange rate was fixed according to the gold

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value of currencies that have to be exchanged.
• Monetary Discipline
No inflation
• Speculation
• Uncertainty
• Trade Balance Adjustments and Economic Recovery

The difference between the two systems:
Fixed exchange rate is the rate which is officially fixed in terms of gold or
any other currency by the government. It does not change with change
in demand and supply of foreign currency. As against it, flexible
exchange rate is the rate which, like price of a commodity, is determined
by forces of demand and supply in the foreign exchange market. It
changes according to change in demand and supply of foreign currency.
There is no government intervention.

Identify exchange rate regimes used in the world
today and why countries adopt different exchange
rate regimes:

In today world:
• Some countries have adopted floating exchange rates
US dollar
• Some countries have pegged their currency to another currency
The European Monetary System (EMS)
• Some countries have pegged their currency to a basket of other
currencies, allowing their currency to fluctuate within a zone
around the basket.
DKK to the Euro

Understand the debate surrounding the role of the
IMF in the management of financial crises:
Currency crisis: when a speculative attack on the exchange value of a
currency result in a sharp depreciation in the value of the currency and
forces authorities to expend large volumes of international currency
reserves and sharply increase interest rates to defend the prevailing
exchange rate.

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Banking crisis: a loss of confidence in the banking system that leads to
a run on banks, where individuals and companies want their money out
Foreign debt crisis: a situation where a country cannot service its
foreign debt obligations, whether private-sector or government debt.
• Greece, Ireland and Portugal in 2010

IMF:
• Helping countries navigate through financial crisis by lending capital to
governments and requiring them to adopt certain macroeconomic
policies.
IMF imposes inappropriate condition on developing nations that
are the recipients of its loans.

Explain the implications of the global monetary
system for currency management and business
strategy:
The current system is a mixed system in which a combination of
government intervention and speculative activity can drive the foreign
exchange market.
• Having production spread to difference locations around the world =
spread risk
Contracting out manufacturing (udlicitering), where you can shift
suppliers from country to country (only by low-skilled and low-valued
production)
(12) The Global Capital Market
Function: bring together, those who want to invest money and those
who want to borrow money.
• The global capital market has a greater supply of funds available for
borrowing = lower cost for borrowers
• Allows investors to diversify portfolios of holdings internationally,
thereby reduced risks
• Last decades of growth within the capital market = advances in
information technology, the widespread deregulation of financial
services and the relaxation of regulations governing cross-border
capital flow
• Lack of government regulation = attractive Eurocurrency market =

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lower deposit and lending rates = competitive advantages for Euro-
banks

The global bond market (obligationsmarked)
• The foreign bond market
• The Euro-bond market

The global equity market (aktiemarked)
13. The strategy of International
Business
Exercise: Management Focus - Cement company
starting in Mexico and expanding

• How would you describe the cement industry? - Value added
logistic/distribution - Standard product - Based construction
industry - Oligopolistic developed countries / fragmented structure
in developing countries
• What reasons/motivations explain CEMEX's FDI. What are the
benefits of a geographical expansion for CEMEX? - To
decrease the pendency in own market (Mexico) - Response to
developing countries demand - Replication of previous success -
To reduce transportation costs - Risk diversification - Motivated by
buying inefficient companies and make them more
productive/increasing efficiency of the industry = To find demand in
new markets / new possibilities to grow
• What resources and capabilities provide the basis of CEMEX's
competitive advantage - Just in time production/delivery -
Reliably product - Strong in customers service / communication ->
ICT - Good at transferring skills - Good marketing - Good
relationship with distributers - Good at spotting opportunities -
Ability to understand the construction industry in developing
countries = Some of these advantages are transferable and can
be used in the new markets
• Why did CEMEX start its ambitious international growth in
developing nations? Account for the sequence in which

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CEMEX entered foreign markets? Preference for FDI /

acquisitions
• Tacit nature of company - acquire to have control over the
transportation of skills
• Apply to existing capacity - the adding value competencies
Why not franchising:
• Problem with finding trustful partners and institutions - lack of trust in
both partner and institutions
• Their competitive advantages are valued in service and distribution ->
which makes it necessary to have control

Compare with the costs of transaction costs! What are most
profitably??
• Why has CEMEX a strong preference for acquisitions over other
entry modes (e.g. export or licensing)?

WHERE - did they go:
• Venezuela
• Colombia
• Indonesia
• The Philippine
• Egypt
• Spain
• USA
• UK

WHY:
• Similarities to Mexico / Mexico as entry country (Uppsala School -
low psychic distance)
Language / Spanish
Institutions / politics
Culture, norms, values
Migration
= All of the entered countries have some similarities to Mexico
16 Economic (look also at)
Size of population
Growth rate
Income per capita

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Developing countries: also available to other companies

• Location advantages; cheap resources
• High construction (growth rate?)
• Fragmentation / no other big MNC in the countries -> so they got first
mover advantages = do not want to start a war with the big rivals,
then it is better to go into less relevant countries for your rivals and
then you are big enough, you can enter the markets, where your
big competitors are.
• Demand in new markets

Chapter 13 - The strategy of international business
Firm strategy:
• A firm’s strategy refers to the actions that managers take to attain the
goals of the firm
• Firms need to pursue strategies that increase profitability and profit
growth
Profitability = the rate of return the firm makes on its invested
capital
Profit growth = the percentage increase in net profits over time
Difference: profitability and profit growth; have much you
get from invested capital, and

Firm strategy:
• To increase profitability and profit growth, firms can:
Add value (differentiation strategy): more value makes the profit
more
Lower costs (low-cost strategy): lower costs makes the profit
more
• Expanding internationally can lower costs and/or add value

Building global strategies:
• Global strategies take advantages of operations spread across the
world
• How can companies make best use of the diversity of the world?

Different types of advantages/opportunities that firms may be
chasing when they develop global strategies
The role of firm core competencies

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Choosing a strategy: The I/R framework

Global Advantages
• Global scale (the benefit of size)
• Economics of scale = reduction in unit costs
Fixed costs spread out over a larger volume
Reduction of switching costs
Reduction of cost of inputs die to increased bargaining
power
• Learning effects : increased efficient over time due to learning by
doing
Individuals learn the most efficient way to perform particular
tasks
Managers lean how to manage the new operation more
efficiently
If you keep your employees for a long time + and
keeps motivating them with e.g. bonuses and
responsibility = gain reduced costs from leaning
effects (maximize your outcome from activities)
• Global scale advantages reduce costs (e.g. in production,
product development, marketing)

Global sourcing
• Advantages associated with access to resources where they are
available:
At the best quality
At the lowest price
• Different stages of the value chain are dispersed to locations to
maximize benefits from quality/prices advantages
• Allows (internal) exploitation of comparative advantages
• Agglomeration effects
• Global sourcing provide access to a wider range of inputs which can
reduce costs, increase value or both

= Global advantages and global sourcing = To ways of reducing costs

Global knowledge management:
• Advantages associated with the exploitation of knowledge

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geographically distribution
• Intra-MNE knowledge transfer to
Leverage subsidiaries' competencies
Tap into local knowledge
• Global knowledge management enhances innovation and efficiency
• E.g. the case: local bound or not: some knowledge your learn can be
use in other markets (duplication knowledge). If you go into a
foreign country, which is similar to another one in which you do
business, you can use that knowledge again. They knew how to
do business in Mexico and then they used this knowledge in the
other countries. (avoid doing the same mistakes again and do
everything more efficiently)
For an example read: leveraging subsidiary skills at Arcelor Mittal"
on p. 392 in the book.

Diversification of risk: (having to very different businesses)
• Sales revenues from a variety of sources reduce overall risk
(assumption of low correlation)
• Protection from exposure to adverse events (e.g. economic crises,
natural disasters, war)
• Diversification of risk reduced the corporate risk profile
Spread out risk: different countries, fields, branches, markets

Firm's core competencies
• The world offers a lot of possibilities to reduce costs
• Capabilities and resources within the firm that competitors cannot
easily match or imitate
• Can exist in any value creation actively (primary activities,
support activities)
• The success of firms that expand internationally depends on the firm's
core competencies
• Core competencies allow firms to reduce the costs of value creation
and/or to create perceived value so that premium pricing is
possible
• Core competencies should bet transferable

Resources leading to sustainable competitive advantage (VRIO
framework)

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• Firms' competitive advantages are due to their endowment of strategic
resources that are valuable, rare, costly to imitate and costly to
substitute.
• Valuable: allow to create more value than the competitors or
neutralize threats in the external environment
(be more valuable than the competitors)
• Rare: possessed by few, if any, current and potential
competitors
(only owned by the firm= or can the competitors easily
access the knowledge?)
Mexico: knowledge not available to other firms
• Inimitable: when other firms either cannot obtain them or must
obtain them at a much higher costs
Mexico: Yes other firms can imitate, but they cannot access
the low costs fast, is takes time
Only it there is a patent, things cannot be imitated.
• Non-substitutable : the firm must be organized appropriately to
obtain the full benefits of the resources in order to realize a
competitive advantage

Globalization:
The differences in tastes and preferences are not that huge anymore -
the world is getting flatter = the result; more and more global brands
(they meet our general preferences
BUT on the other hand…
• Countries that share a common language trade 42 % more with each
other than countries that lack that bond
• Shared cultural values still influence trade patterns though reduction
transactions costs
• If countries once shared an imperial tie they trade a startling 188 %
more with each other
1 USA: Big mac - different varieties, chicken in India, fish in Spain
etc.

Firms care:
Strategy of the firm (international business strategy)
• The environment strongly influences what kind of strategy the firm
should use

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Structure of the firm (its organization)
• The environment and strategy strongly influence what kind of structure
and organization the firm should use
Contingency perspective: increased performance is the result of fit
between a firm's strategy and the environment it is competing in.

Opportunities: How to decrease costs and increase value
• Deal with global synergy : Global strategy: create more value
◦ Gillette and Heineken: want their product to be the same
everywhere
Standardized products recognized brand
Rationalized operations: control of managers
Centralized coordination and control

Risks:

Blindness to everything but global forces
Shortsightedness to localizing forces
• Deal with local responsiveness : Local responsiveness strategy:
national demand, preferences and tastes of the national
area/market
◦ Toyota/Coca-Cola: try to get closer to the individual needs in the
countries
Locally adapted products
Local operations enjoy high level of autonomy
Country managers are often entrepreneurs who run their
business independently from the rest of the MNC

Risks:

Limited integration of different country markets (low
knowledge sharing) high transactions costs + no
economics of scale and learning effects
Slack resources, redundancies

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When are pressures for cost reductions greatest? High pressures
to reduce costs!
• In industries:
◦ Producing commodity type products
◦ With products that full universal/standardized needs
◦ Where prices is the main competitive weapon
• When major competitors are based in low costs locations
• When there is persistent excess of capacity
• Where consumers are powerful and face low switching costs

Pressures for local responsiveness:
• Cultural differences
◦ Consumer tastes and preferences
◦ Way of doing business
• National infrastructure
◦ Technical standards (voltage, TV broadcast)
◦ Distribution channels (supermarkets vs. Bazaars)
• Government demands
◦ National laws and regulation
◦ Host country pressures and demands
• Local competitors
◦ Appeal to nationalism


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14. The Organization of International
Business
Organizational design
• The process that deals with how components (e.g., domestic/foreign
units; employees),resources and activities of a firm are organized
in an efficient and effective manner
It will give people the skills, direction and motivation to do the
work necessary to achieve the firm’s strategic goals
• A powerful tool to shape performance:
It contributes to the successful implementation of the company’s
strategy
• There is no perfect design: org design is about balancing of trade-offs

How to organize the firm:
• Think about discussion and arguments, want to know what we are
thinking

• Components, resources and activities need to be consistent with each
other but also consistent with:
• The environmental context
• The strategy of the company
• Therefore, the organizational design of a company must evolve over
time to respond to changes in
• The environment
• The strategy
• Failure in the organizational design threatens the firms' performance
and its long-term survival

Organizational design: Primary dimension
• Four key components of the organization:
The work
Nature of the tasks to be performed
Patterns of work flow
People who perform the work
Skills, knowledge, experience, expectations
Formal arrangements
Explicit structures and system developed to organize work

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and people (e.g. allocation of decision making authority;
coordination system)
Informal arrangements
Unwritten guidelines that exert a powerful influence on the
behavior of groups and individuals (e.g. organization
culture)

Organizational arrangements
Affect people's performance:
• Motivate behavior
Through reward system, bonuses
• Facilitate behavior: help people perform task
Through procedures, communication mechanisms
• Constrain behavior: prevent people from spending time/effort on
certain activities
Through physical separation, limiting communication, etc.

Formal arrangements:
• Structures
Reporting relationships among units (who are the boss, who are
not)
Grouping of functions; R&D, marketing, Europe
• System
Reward system
Information system
Communication system

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Coordination system; teamwork across different units
• Processes
Specifically defined sequence of tasks, activities or operational
methods (e.g. fulfillment of an order. Warehousing,
distribution, order taking, billing, delivery)

What is organizational design for?

An information processing view
17 Different organization designs provide different types of information
processing capacity
18 Organizations need to process information for organizational
decision-making
19 Basic assumption: organizations must deal with different sources
of uncertainty

• Dealing with uncertainty requires organizations to enhance information
processing
Facilitate the collection, gathering, processing of information for
organizational decision-making

• Sources of uncertainty; can be from outside or within the
organization
From the environment: unstable ones are more uncertain
From each subunit: in relation to their ability to deliver their tasks
efficiently and effectively
Example: The Product Development division of a firm in order to
develop/improve a product needs:
• Infor about shifts in customers' demands
• Info about products and services offered by competitors, and info
about relative price
• Info about whether the product can be manufactured in house and at
what cost
• Info about performance of similar products, customers' problems and
concerns
Where and how can the info be found? How much does the
organization know? The organizational design should support
the product Development in finding this info…

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• Grouping together in the same unit some jobs and people eases the
flow of information within the boundaries of the group. However,
share information outside the group become difficult (we want to
favor the flow of information)
A worldwide product divisional structure favors common
language, goals, etc. within the product division and eases
the intra-division flow of information but reduces inter-division
information flows

CEO
Division 1 Division 2 Division 3
R&D Production
US Developing country

• We need the divisions of communicate with each other.

• Centralization can facilitate coordination and stimulate information
flows from manager of lower-level groups to the manager of the
higher-level group. However,

In unstable environment
, decentralization favors information
processing locally (where information is available) and with a
fast pace (needed to react promptly to the environment
change)
In fast changing environment, you need to react quickly =
decentralization


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• Interdependencies between groups increase the need for inter-group
information transfer. Formal and informal relationships among
groups separated by structural boundaries allow for movement of
information

Cross-unit teams
with responsibilities that cross the formal
boundaries of the groups increase the organization's capacity
to move information

The incentive scheme
of the manager of the European Area
linked to the output target of the manager of the Dyes
Division (and vice-versa) increases information transfer
between the two managers
When my bonus depends on who another group is working,
I better communicate with them.

Social evets, espoused and lived corporation values
, etc. Favor
the development of a string organizational culture that,
ultimately, facilitates coordination and information transfer
How do we ensure, that the employees plays the game for
the company


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Organizational structure
• Vertical differentiation: The focus of decision-making authority
• Horizontal differentiation: is about grouping/aggregate work functions,
positions, individuals into work units
• Integrating mechanisms: creation of formal links to allow for the
movement of information among otherwise separate groups (e.g.,
cross-unit teams)

The classic strategies:
Multinational strategy: Decentralized Federation
• need to stay local, have a part of the value chain local, need to
understand the local demand and tastes.
• A lot of power in the subsidiaries / need to be local / location bounded
• The best choice to delegate the decisions to the subsidiaries (work
independently)
• Not big control system -> only control - an overall budget + 2 %
growth, but how you get there, is your choice.

Global strategy: Centralized Hub
• Taking advantages from the local activities
• Key strategic decisions made centrally by the headquarter
• Mainly flows of goods everything is organized and decided from the
central power.

International strategy: Coordinated Federation
• Global sourcing idea
• Everything is send out to the local units, and afterwards sent back
• Control is almost only by the central power
• The subsidiaries only have a very little decision-making, only in their
part of the value chain

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Difference between multinational and international strategy:
international strategy - knowledge is developed from the central power,
and in the multinational strategy knowledge is developed in the different
subsidiaries. In the multinational strategy they are independent and take
their own decisions, whereas in the international strategy the center is
coordinating the production, R&D etc., support activities for the different
localized subsidiaries.

The transnational firm (the transnational strategy) - integrated
network / matrix structure
• A need for world-wide learning and innovation (firms can benefit from
being foreign)
= the transnational is the answer of world-wide needed learning
• Connection between the foreign units / share knowledge
• Every units is communication and sending information across all units
and not only through the center.

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If firms have a networked strategy - will stay in the firms formal values;
knowledge are important for us, creation a strong culture, where people
share values, and force them to work together

The case of Lincoln Electric:

• What has accounted for Lincoln's outstanding and enduring
success in the US?
• How do they do their manufacturing compared to their competitors ->

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looking for the sources of their competitive advantages = able to
produce at lower costs + a higher productivity through their
employees
◦ Incentive system:
Bonus system: quality + collaboration
Piece work / pay per unit they produce
◦ Open door policy - everybody knows what is going on / can talk
directly to CEO and managers / low power distance /
equalitarian / non-hierarchy (flat structure of the firm) - Visits
- Meetings
◦ Quality control
◦ Culture -> egalitarian
◦ Dedicated work force / feeling they are a part of the company /
◦ Self-motivated + initiative workers
◦ Prosses part: Self-contained -> worker's activities
◦ Outstanding customer service
◦ High-tech equipment
◦ Standardized process = reduced costs
◦ Founder / history
◦ Trust / fairness
• People, process, organization -> another 4P?????

• If Lincoln's incentive systems has been such a successful
system, why didn't its competitors simply follow Lincoln's
example? / understand Lincoln's source of competitive
advantage -> Piece work Piece work: you can't do it over night,
need the right people + the right environment within the company -
Maybe it do not fit into other cultures / locations / other firms might
have their own culture / changing can be hard Lincoln payed per
unit, the competitors per hour
• Culture in the US: Everyone is the architect of his own fortune

All in all, the competences are imitable for very high costs -> the first
mover advantages -> hard to imitate their culture, which links the top
and the bottom together in such a good way; informal coordination
within the firm -> social community The company's competitive
advantages = piece work, but Discuss that for your own firm -> how to
recognize ownership advantages -> explain that

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Ownership advantage:
• Core competences of the firm
• Source of competitive advantages
• Management + product
• Sometimes it is the whole integration
• Is it transferable? Explain why there can be exploited in the new
market

Where can the firm engage in international business -> what is the firm
good at? What are the ownership advantages of this firm? What is the
firms competitive advantages? Ownership - Sustainable advantages
• To what extent are the organization culture and incentive system
of Lincoln Electric aligned with the firm's strategy? Evaluate
whether Lincoln's competitive advantage is transferable into
other countries/cultures:

• Culture:
◦ Organization
◦ national
• Work ethic
• legal system
◦ Static view
◦ Dynamic

• What about in two years? -> moving in this direction -> influence the
company so and so focus on what is relevant ->
• The match between the competitive advantages in a foreign country ->
which ownership advantages do my company have? There are a
priority -> explain my choices Take your target country and
another country and compare them PESTEL: tell why you chose it
-> reason of applying the framework = PESTEL, first 2 chapters in
the book
• Only use the dimension which are RELEVANT! Mention the ones,
which are not relevant, the relevant ones -> go deep
1 Why did the internationalization thrust of the late 1980s and early
1900s fail?
• Did not fit into the foreign countries = cultural differences too big
• Should have used more local adaption - The acquired a firm, a US

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manager was chosen to operate it and did not even visit Europe ->
you need to be in the country, "hands on"
• They should have found out their advantages before going
international
• They did not think about cultural differences before internalization
• Langsom reaktionsevne til nødvendige ændringer -> decentralized
structure were better, because they then could react quicklier.

The acquired a firm, a US manager was chosen to operate it and did not
even visit Europe.

Future expanding - only with a partner in a joint venture.

Lincoln now has an internationally experienced board of directors and
management team and is a lot wiser thanks to be harsh lessons of the
past.

Which strategy did they try to pursue? Could not do export said their
distributers in Europe -> so made a FDI to be "made in Germany"
They tried to localized response
INTERNATIONAL STRATEGY

What is the motivation behind the - MOTIVATION FOR EXPORT
• Low dependence on US market
• Power building in the management
• Felt under pressure from the Swedish competitor going into the
American market -> a response to the competitor by going into
Europe as well

Will the consumers adapt our product? Wil they buy it? Uppsala model -
> Successful exporting told by their distributers -> a huge mistake,
should have make some research themselves!

Liason office -> breaking down distance between market and firm and
how they react to the product - cheap, fast option to invest the market ->
own service and distribution, marketing
-> if that functions good -> you can do your own FDI investment ->

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learning process Office with 2 persons = greenfield Own subsidiary
with 3 persons = still an FDI
5 If you were the CEO of Lincoln Electric, would you have entered
Europe through acquisition, greenfield or some type of
exporting? Which factors would inform your decision among
these entry mode choices? FDI as a good decision:

• Need control
• More flexibility -> time issue
But:
• They should have invested the culture Joint venture - because:
Benefit
• Organizational culture
• Allow you to learn more about the culture, before making an FDI =
local knowledge
What is your evaluation of Lincoln's strategy? ...
15. Entry Strategy and Strategic
Alliances
Basic Entry Decisions:
• Which markets to enter / where?
Economic and political factor that influence the potential
attractiveness of a foreign market - Ch. 2 + 3
Attractiveness depends on balancing the benefits, costs and risks
associated with doing business in the country
Size of the market (demographics)
The present wealth (purchasing power)
Future wealth of consumers, which depends on economic growth
rates
Living standards and economic growth
Political stable and economically advanced nations
Size of the market
Purchasing power of consumers
Economic growth rates
Stability and predictability
Risk factors
Incentives
Think about the match between your core

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competencies/ownership advantages and the
advantages(disadvantages) of the location (ad
discussed in session 7)
Attractive market matches with the companies
advantages
Entering a market by a strategic alliance with a larger
partner may minimize the risks
It the business offers a product, which has not been widely
available in the market, the need and the value of the
product to consumers is likely to by much greater than
it the business simply offers the same type of product as
current competitors in the country is already offering.
Greater value translates into an ability to charge higher
prices or/and to build sales volume more rapidly.
• When to enter those markets / timing of entry
Are the company the first of its kind in the country? = First-mover
advantages
First-mover disadvantages -> pioneering costs (when the foreign
market are so different from its home market, that the
company has to devote considerable effort, time and expense
to learning the rules of the game
Pioneering costs includes the cost of business failure, also
include costs of promotion and establishing a product
offering, including the costs of educating customers.
(KORTKARTELLET)
• On what scale - large or small
Large scale:
Acquires a lot of resources like capital
Strategic commitment - a decision that has a long-term
impact and is difficult to reverse
May cause rivals to rethink market entry
May lead to indigenous competitive response
Small scale:
Gradual commitment and time to learn about market and
get information about the market / understanding about
the market
Reduces exposure risk from potential losses
Smaller impact on local market / harder to build market

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share and to capture early-mover advantages
• Try to identify how actual and potential competitors might react to
large-scale entry into a market

Multinational do not have to go through all steps, whey already got the
"multinational knowledge". But smaller firms, often have to go through
different steps.

Uppsala; about learning markets -> how the knowledge can be applied
and used

Entry modes - How to entry?
Once a firm decides to enter a foreign market, the question arises as to
the best mode of entry.
• Exporting - 2 types
Indirect exporting: Danish firm produces in Denmark and
start exporting by a Danish distributer
Direct exporting: Danish firm, will look in France for a
distributer, when they want to
Pros
Low risk, low cost and flexible
Avoid the cost of establishing manufacturing in the host
country
Help to achieve experience curve and location economies
By manufacturing central, you may get some scale
economies from the bigger sales volume
Cons
Can be more profitable to produce in other locations
High transportation costs from home - to export market
Tariff barriers can make exporting uneconomical
If an agent or another company takes care of marketing and
distribution, it can happen that they do not do as good a
job as the firm itself could - maybe divided loyalties
Exporting - low control -> by having partners in Germany selling
their products -> KORTKARTELLET
• Turnkey projects (contractors agrees to handle every detail of the
project for a foreign client)
Pros

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Useful if an FDI is limited by host-government regulation ->
still can earn money in that country
In unstable countries it reduces the risks
Cons
No long-term interest in the country - maybe the country is
worth a FDI instead, but then it's too late
May inadvertently create a competitor
Selling their technological competitive advantages to
potential/actual competitors
• Licensing - production firm (licensor grants the rights to
intangible property to a company(licensee), which in return
pays a royalty fee)
Pros
Licensee bears the cost and risks associated with opening
a foreign market
Good if you have a lack of capital (want to go international,
but do not have the capital)
Cons
No tight control over manufacturing, marketing, strategy etc.
and do not get experience curve and location
economies
Risk that the company copies you patent and your
knowhow - and gets and competitor
• Franchising - service firm (similar to licensing - involve strict
rules on how it does business) like McDonald's - rules about
menu, cooking methods, staffing policies, design and
location, fixed supply chain by the organization.
Pros
Using a franchising strategy the firm can quickly start up a
relatively low cost and risk
Cons
Do not own the franchise, so cannot take the money out
and put it somewhere else
Quality control -> brand name covers a standard
• Joint ventures with a host-country firm / mergers
Pros
Benefit from local partner's knowledge; culture, language
etc.

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Sharing the costs of etc. a new store
Easier because of political considerations -> easier to be
friends with the government
Cons
Risk of giving control and know-how to the partner
No tight control - two to take decisions -> can lead to
conflicts and battles for control
• Wholly owned subsidiary in the host country - Can be done in two
ways: Set up a new operation "a greenfield venture" or acquire an
established firm to promote its products
• Through Acquisitions and Greenfield
Pros
100 % stocks = 100 % control over operations + 100 %
share of the profit
No risks of losing control over competences
Requires the firm to realize location and experience curve
economies
Cons
Need capital to invest
Risks setting up overseas - need for local adaption
Acquisitions
• Quickly to execute
• To preempt their competitors
• Managers believe acquisitions are less risky, because it is already
producing a known revenue
Why it often fails:
• Often overpay for the assets of the acquired firm (often if more firms
are interested)
• Hubris hypothesis: Management often too optimistic about the value
that can be created via an acquisition
• Cultural differences -> management often takes over with new ways of
doing things
• Often it takes more time integrating the acquired company than
expected
• …

FDI = joint venture (around 50+ % shares), greenfield, brownfield,
acquisitions

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Greenfield venture: buy the land, build the office, we hire people locally
or by transferring; PAGE 464
Brownfield venture: When a company or government entity purchases
or leases existing production facilities to launch a new production
activity. This is one strategy used in foreign-direct investment.
Question to Larissa: Is buying a closed store in Munich - a greenfield
venture or an acquisition? Or maybe a brownfield venture? Or
something else.

Strategic alliance
A cooperative agreement between potential or actual competitors.
• Easier getting into new markets - e.g. the Chinese market
• Allows firms to share fixed costs
• Bringing together complementary skills to create something new

What influences the choise of entry mode?
• Transport costs
• Trade barriers
• Political risks
• Economic risks
• Costs
• Firm strategy
• Firm capital
• The optimal mode varies by situation - what makes sense for one
company might not make sense for another
• Managers need to consider the advantages and disadvantages of
each entry mode

Relevant decisions for market entry mode
20 Degree of control that the firm want to maintain over decisions,
operations, and strategy (DIAS)

Resources within the firm -> which competences do they have?
• Nice product -> cannot be copied but imitated?
• International strategy????????????

There is a lot of fixed costs -> searching of distributer or partner, buying

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a shop

Learn from other firms in the market -

The level of competition in Germany - rivals

OECD 2006 survey -> questions for small firms -> dicuss the questions
in the exam

16. Exporting, Importing and Countertrade
It has become much easier to export through different declines in trade
barriers like the European Union according to regional economic
integration -> increase export opportunities within Europe - also with
help from the internet and better communication systems.
Countertrade: allows payment for exports to be made through goods
and services rather than money.
The Promise And Pitfalls of Exporting

• For most firms there are more revenue to gain outside its home
country.
• By expanding the size of the market, exporting can enable a firm to
achieve economies of scale, thereby lowering its unit costs.
• There is a lack of willingness towards exports, especially in smaller
companies.
• Common pitfalls
Poor market analysis
Poor understanding of competitive conditions in the foreign
market
A failure to customize the product offering to the needs for
foreign customers,
A lack of an effective distribution program
A poorly executed promotional campaign
Problems securing financing
Improving Export Performance

An International Comparison
• Lack of knowledge of the opportunities available

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• In Germany, industry associations help firms to enter new markets, by
helping them spot foreign business opportunities.
• Japan and Germany has always had a strong tradition for exports. US
are getting more reliant on exports and imports.
Information Sources e.g. in the US
• The US Department of Commerce and its district offices around the
country, helps businesses start their exporting adventures.
• The Small Business Administration is another way to get support for
one’s exports.
Utilizing Export Management Companies
• Export Management Company - act as the export marketing
department or international department for their client firms.
• EMSs often specialize in serving firms in particular industries and in
particular areas of the world.
• Advantage of EMCs - they are experienced specialists, which helps
the neophyte exporter identify opportunities and avoid common
pitfalls.
Export Strategy
• Small guidelines to become successful:
Enter on small scale to reduce risks (and learn about the
country)
Add additional product lines once the exporting operation start to
become successful
Hire local people (know how) to promote the company's
products
Focus on one or few markets firstly
Make personal relationships in the exporting country with local
distributors and customers
Exporting is often only the first step toward establishment in the
home country -> after reacting a sufficient volume -> it can be
more cost-efficient to have local production (at step on the
road to establishment in the country -> helps foster good
relationships and greater market acceptance
Export and Import Financing

• Mechanisms for financing exports and imports have evolved over the
centuries in response to a problem that can be particularly acute in
international trade: the lack of trust that exists when one must put

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faith in a stranger.
• The problem is solved by using a third part that both parts trust e.g. a
bank
Lack of Trust
21 Lack of trust makes the letter of credit necessary.
Letter of Credit
• This contract stands at the centre of most international trade.
• The letter of credit is issued by a bank at the request of an importer,
the letter of credit states that the bank will pay a specified sum of
money to a beneficiary, normally the exporter, on presentation of
particular, specified documents.
Draft
• Also referred to as the bill of exchange
• Normally used to settle the transaction
• This is opposite of domestic transactions where goods are often
shipped with a following bill
Sight draft: is payable on presentation
Time draft: allows for delay in payment e.g. 30, 60, 90, or 120
days
Bill of Lading
• Function as both a receipt, a contract, and a document of title.
A Typical International Trade Transaction
Export Assistance
Export-Import Bank
• Independent agency of the U.S. government.
• Provides loan guarantees and guarantees repayment of medium and
long-term loans that U.S. commercial banks make to foreign
borrowers for purchasing US exports
Export Credit Insurance
• The exporter can insure itself against payments not being made by the
importer.
Countertrade
• The main principle is trade goods for other goods, when payment in
terms of money transactions is not possible.
Barter: direct exchange for goods/services between two parties

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without a cash transaction
Counter-purchase: when a firm agrees to purchase a amount of
material back from a country = the sale evens out
Offset
Switch trading:
Buyback
17. Global Production, Outsourcing and
Logistics
Strategy, Production, and Logistics
• Purpose from production and logistic: To lower cost of value
creation and add value by better serving customer needs.
• Production is placed where most efficient. Need for logistics.
• Reducing inventory reduces costs.
• Increasing product quality reduces costs by
Increase productivity, because time is not wasted producing
poor-quality products, which cannot be sold
Lowering rework and scarp costs associated with defective
products
Reducing the warranty costs and time associated with fixing
defective products
• Production and logistic must accommodate demands for local
responsiveness.
Where to Produce
To locate where production activities best minimize costs and improve
product quality.
• Country factors
Political economy, culture, and relative factor differ from country
to country.
Currency instabilities etc.
Comparative advantage
• Technological factors
The level of fixed costs -> producing in only one location can be
risky in a world of floating exchange rates
The minimum efficient scale -> the more we produce - the lower
costs

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The flexibility of the technology/manufacturing -> technologies
designed for flexible production = reduce setup time
Flexible machine cells -> controlled by a computer -> switch
quickly between the production of different parts
• Product factors
Value to weight ratio = influence on transportation costs
If products serves universal needs, then produced were most
efficient.
• Hidden costs of foreign locations
Poor working culture etc.
Look a figure 17.1
The strategic role of a Foreign Production Site

• Initially low wages were the reason why companies moved to
developing countries.
• Wages are rising, but productivity and product design rises as well.
Outsourcing Production: Make-or-Buy Decisions

• Make
Advantages
Lowering costs
Facilitating specialized investments
Protecting technology
Accumulating dynamic capabilities (skills)
Improving scheduling
Just-in-time production
No warehouse
Disadvantages
…
• Buy
Advantages
Strategic flexibility
Lower costs
Offsets
Disadvantages
18. Global Marketing and R&D

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Explain why it might make sense to vary the

attributes of a product from country to country
• Differences in needs of the marketing mix - the 4P's (product, place,
promotion & price)
Market segmentation

Product Attributes (product)
• Products sell well when their attributes match consumer needs
• Cultural differences: social structure, language, religion and education
(tastes and preferences are becoming more cosmopolitan)
• Economic development: consumer behavior is influenced by the level
of economic development of a country
In highly developed countries companies tend to build a lot of
extra performance attributes into their products
In developed countries consumers are not always willing to
sacrifice their preferred attributes for lower prices = willing to
pay more for product customized to their tastes and
preferences
• Product and technical standards

Recognize why and how a firm's distribution strategy
might vary among countries

Distribution strategy (place)
• Main differences between distribution systems
• Retail concentration = a few retailers supply most of the market
• Fragmented retail system = many retailers, none of which has a major
share of the market
• Channel length = the number of intermediaries between the producer
and the consumer
• If the producer sells directly to the consumers, the channel is
very short.
• Channel exclusivity = difficult for outsiders to access
• Often difficult for a new firm to get access to shelf space in
supermarkets (play safe instead of unknown)
• Channel quality
• The expertise, competencies and skills of established retailers in

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a nation and their ability to sell and support the products of
international businesses
Choosing a distribution strategy:
• Should the firm try to sell directly to the consumer? Or should it go
through retailers, wholesaler or use an import agent or invest in
establishing its own channel? Longer channel = less margins. Nice
to have relationships with retailers etc., because sometimes they
can help push the product through the distribution system

Identify why and how advertising and promotional
strategies might vary among countries

Communication strategy (promotion)
• Communication channels consists of direct selling, sales promotion,
direct marketing and advertising -> a marketing message is used
to sell products in another country.
• Cultural barriers : Hofstede - use local input, such as local advertising
agency, local sales force etc.
• Source effects : can be hard to be a foreign company in some
countries; when Germans do not like US products
Consumers may use country of origin as a cue when evaluating a
product (KORTKARTELLET)
• Noise level : the amount of other messages competing for a potential
consumer's attention - in developed countries noise is extremely
high.

• Push strategy: personal selling
• Pull strategy: mass media advertising
Often the strategies are combined, but is also depends on
different factors:
Product type and consumer sophistication
Large segment = pull strategy
Low literacy levels = personal selling (have to educate
the population)
Channel length
Long way through many retailers = using mass media
advertisement (be aware of literacy level)
Media availability

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Developed countries: lots of medias - newspapers,
magazines, television, internet, radio

Global advertising / standardized
22 Pros:
Economic advantage (lower costs only making one
advertisement = spreading the fixed costs)
One large effort to develop a campaign will produce better results
than 40 or 50 smaller efforts
Many brand names are global and want to project a single brand
image to avoid confusion caused by local campaigns
23 Cons:
Cultural differences can make what was working out in country to
a big failure in another country
Advertising regulations may block implementation of
standardized advertising

Explain why and how a firm's pricing strategy might
vary among countries

Pricing (Price)
• Price discrimination : when consumers in different countries are
charged different prices for the same product (or slightly different)
• Make economic sense: monopoly = higher prices, competition = lower
prices
Keep national markets separate
Different price elasticities of demand
Elastic = when a small change in price produces a large
change in demand
Inelastic = when a large change in price produces only a
small change in demand

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Strategic pricing
• Predatory pricing: using price as a competitive weapon to drive weaker
competitors out of a market (antidumping regulation)
• Multipoint pricing strategy: when a firm's pricing strategy in one market
may have an impact on its rivals' pricing strategy in another
market
• Experience curve pricing: firms pursuing low prices worldwide in
attempting to build global sales volume as rapidly as possible
(antidumping regulation)
PRICES ARE REGULATED BY:
• Antidumping regulation (when a firm sell its products to a price that is
less than the cost of producing it)
• Competition policy (no monopoly)

Describe how the globalization of the world economy
is affecting new-product development within the
international business firm
• The value chain in being spread all over the world
• New-product development is a high-risk, potential high-return activity
• To build a competency in new-product development - a company must
do two things:
Establish R&D activities in those countries, where new products
are being pioneered

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Integrate R&D with marketing and manufacturing in a cross-f
19. Global Human Ressource
Management
Summarize the strategic role of human resource
management in the international business

Human resource management: carries activities including staffing,
performance evaluation, management development, compensation and
labor relations - in the most efficient way (a part of the strategy)

Firm success requires HRM policies to be congruent with the firm's
strategy and with its formal and informal structure and controls

HRM in a MNC need to me modified to national context - because of
differences between countries in labor markets, culture, legal systems,
economic systems etc.

• Structure
• Processes
• Incentives and controls
Performance appraisal systems
• Culture
• People
Need the right people in the right positions
Need to be trained to do their job the best possible way + behave
in the manner with the culture of the firm

Identify the pros and cons of different approaches to
staffing policy in the international business
• Selecting employees, who have the skills required to perform
particular jobs
• Staff policy can be a tool for developing and promoting a corporate
culture


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An ethnocentric approach to staffing policy: (international

strategy)
• Fills all key management positions in an international business with
parent-country nationals
Cons:
• Can result in cultural myopia (forget local adaption)

A polycentric staffing policy: (localization strategy)
• Uses host-country nationals to manage foreign subsidiaries and
parent-country nationals for the key positions at corporate
headquarters
Pros:
• Minimize the danger of cultural myopia
Cons:
24 Can create a gap between home- and host-country operations

A geocentric staffing policy: (global standardization and
transnational strategy)
Pros:
• Seek the best people for key jobs throughout the organization,
regardless of their nationality
• Help building a strong unifying culture and informal management
network
Cons:
• Immigration policies of national government may limit this policy

Explain why managers may fail to thrive in foreign
postings
Expatriate manager: a citizen of one country, who is working abroad for
one of the firm's subsidiaries
• Can be reduced by selection procedures

Characteristics by successful expatriate managers:
• High self-esteem and self-confidence
• Can get along well with others
• Are willing to attempt to communicate in a foreign language
• Can empathize with people from other cultures


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Recognize how management development and

training programs can increase the value of human
capital in the international business firm
• Training can lower the probability of expatriate failure
• Should include: cultural-, language- and practical training

Management development programs
• Increase the overall skill levels of managers through a mix of ongoing
management education and rotation of managers through different
jobs within the firm to give them varied experiences
• Often used to build a strong unifying culture and informal network

Explain how and why performance appraisal
systems might vary across nations
• Can be difficult to evaluate

Understand how and why compensation systems
might very across nations
Should a firm pay executives in different countries according to the
standards in each country or equalized pay on a global basis?

Most common approach to expatriate pay is the balance sheet
approach: equalize purchasing power = employees can enjoy the same
living standard in their foreign posting that they had at home

Understand how organized labor can influence
strategic choices in international business firms
Labor unions
Threat to the company: many = move production to another country
Companies often try to make their own labor organization -> without
luck
(20) Accounting and Finance in the

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• Accounting practices differ from country to country = tried to make a
harmonized practice
• Investment decisions, financing decisions and money management
decisions are complicated by the fact that different countries have
different currencies, different tax regimes, different levels of
political and economic risk etc.

• Can be hard to compare different countries financial reports, because
of local demands for accounting information
• Have to explain why the financial report looks different to investors
• Push for harmonization of accounting standards through the
International Accounting Standards Board (IASB)
• The annual budget = the way the headquarter controls it foreign
subsidiaries

Look at page 618.

Larissa: For Example. Then my company chose to expand to Germany
through exports and selling online at their homepage direct to the
consumers. Is it not relevant how to manage the payment? Should the
firm open a Germany back account and let they money stay there or
should it be connected directly to the company's Danish back account?
What then about currency exchanges in relation to accounting?
Does is influence on my grade when I know stuff like that even though
we did not went through it in the lectures?
Implications for managers:
Read implications for managers:
- Ch. 2, p. 54: The political, economic and legal system
• How to come along with cultural difference, Hofstede, ethical
implications of the country
• The attractiveness of the country as market or investment - benefits,
costs and risks
• Things like democratic political institutions, a market-based economic
system, a strong legal system that protect property rights and limit
corruption -> is more attractive
- Ch. 3, p. 80: Benefits, costs and risks - long-term of a country as a
market or investment

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• Size of the market, purchasing power
• First-mover advantages vs. Late-mover advantages
• Costs:
Maybe have to pay the government for coming into the country
How is infrastructure?
Local laws and restrictions to product standards
• Risks
Political stability or instability? Maybe they will suddenly change
the conditions of doing business, tax
Social unrest? Demonstrations = high inflation and small living
standards
Safeguards? Weak = firms are more likely to break contract or
steal intellectual property
•

- Ch. 4, p. 114:
• Cultural differences according to Hofstede - need to understand and
know the culture - employ locals = less risk for being ill-informed
• Value system and norms
- Ch. 5, p. 140
• Ethical problems? Corruption?
• 5 thing managers can do to avoid ethical problems
Favor hiring and promoting people with a well-grounded sense of
personal ethics

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Build an organizational culture that places a high value on ethical
behavior
Make sure that leaders within the business not only articulate the
rhetoric of ethical behavior but also act in a manner that is
consistent with that rhetoric
Put decision-making processes in place the require people to
consider the ethical dimension of business decisions
Develop moral courage
- Ch. 6, p. 184
• Location - place production and the like where it is most efficiently -
clusters??
• First-mover advantages - being the first one in a market
• Government policy - trade policy, barriers of free trade
- Ch. 7, p. 216
• Trade unions? Tariffs etc. The benefits from the EU?
- Ch. 8, p. 245
25 Transaction costs: be aware - currencies can change = risk of
losing money
26 translation, economics exposure = contracts and buying swaps
27 Lead or lag strategy p. 314
- Ch. 9, p. 280
- Ch. 10, p. 313
- Ch. 11, p. 343
- Ch. 12, p. 367
The lower costs of borrowing money = the greater and the less the
company has to pay
Exam: 48 hour individual home
assignment
48 hour individual home assignment of max. 10 standard pages. The
precise exam date, i.e. turn in of home assignment will be posted on e-
campus. The aim of the home assignment is to assess the knowledge
students have accumulated during the course.

The assignment requires students to analyze an actual company’s
overall entry strategy and operations in a foreign market. This can either
be a case where the company of the student’s choice has already

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entered a host market or a case where the analysis focuses on a market
that the company has not entered yet. The take-home project should
integrate and synthesize all the main blocks of the curriculum (as
presented below), to demonstrate the students’ skills in the practical
application of theory to the chosen case.

No restrictions regarding literature and other aids. However,
assignments should include proper references to background literature
and information sources. Declaration of Authorship (available on E-
campus) must be included in the individual home assignment.

International Business Environment
Ordinary exam
Type of exam: 48 hour individual home assignment
Upload date: 14th October, 2015 12:00 (noon)
Hand-in date: 16th October, 2015 12:00 (noon)
Place: e-Exam
Retake exam
Type of exam: 48 hour individual home assignment of 10 pages
Upload date: 20th January, 2015 at 12:00
Hand-in date: 22nd january, 2015 before 12:00
Place: e-Exam

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Lecture Notes - International Business Environment PDF

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Lecture notes, all lectures - International Business

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International Business Environment

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Which investment would you favor and why?

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Recognize how differences in social culture influence values in the

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Companies have 3 subsidiaries:

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Identify the causes of unethical behavior by managers

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Neoclassical trade theory -> Differences in technology

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Yes = Subsidiary / FDI

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Understand the economic and political arguments against regional

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in) in regional economic integration agreements

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CEMEX entered foreign markets? Preference for FDI /

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Developing countries: also available to other companies

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