CHAPTER 7 RESPONSES TO
rate of the euro per dollar is higher
FOREIGN EXCHANGE MOVEMENTS
STRATEGIC RESPONSES
• From an institutional-based view,
knowledge about foreign exchange rates
and the international monetary system helps
paint a broad picture of the rules of the
game that govern financial transactions
around the world.
• Savvy managers need to develop firm-
specific resources and capabilities so they
can rise to the challenges.
STRATEGIES FOR FINANCIAL
COMPANIES
• Foreign Ecxchange Market
• where individuals, firms, governments and
banks buy and sell currencies of other
countries
• Has no central or physical location
• truly global and transparent
• Tokyo, Hong Kong, Singapore. Gradually,
Frankfurt, Zurich, Paris, London, New
York, Chicago, and San Francisco
• 24/7 basis
• largest and most active market in the world
STRATEGIES FOR FINANCIAL COMPANIES
• Foreign Exchange Market Functions
– to service the needs of trade and
FDI
– to trade in its own commodity –
foreign exchange
• Primary Types of Foreign
Exchange Transactions
– Spot Transactions
– Forward
Transactions
– Swaps
• SPOT TRANSACTIONS
– Classic Single shot exchange of one
currency for another
• FORWARD TRANSACTIONS
– allow participants to buy and sell
currencies now for future delivery
– currency hedging – to protect
traders and investors from being
exposed to the unfavorable
fluctuations of the spot rate
– forward discount – if the forward
than the spot rate
– forward premium – if the forward
rate of the euro per dollar is lower
than the spot rate
• CURRENCY SWAP
– the conversion of one currency into
another at Time 1, with an
agreement to revert it backto the
original currency at a specified
Time 2 in the future
– offer rate – price to sell
– bid rate – the price to buy
– spread – the difference between the
offer rate and bid rate
• Currency Risks - the potential losses they
could incur due to fluctuations in the
foreign exchange market
• TWO PRIMARY
STRATEGIES
– Currency Hedging
– Strategic Hedging
• Business savvy - describes a level of
understanding and technical expertise in
business that we are more prone to
recognize in others than acknowledge in
ourselves .
CHAPTER 8- REGIONAL INTEGRATION
TYPES OF REGIONAL ECONOMIC
INTEGRATION
• FREE TRADE AREA- Group of countries
that remove trade barriers among
themselves
• CUSTOMS OF UNION- One step beyond
FTA, a custom union imposes common
external policies on non-participating
countries
• COMMON MARKET –Permits the free
movements of goods and people
• ECONOMIC UNION – Members also
coordinate and harmonize economic
policies (monetary, fiscal, and taxation) in
order to blend their economies into a single
economic entity.
• POLITICAL UNION – integration of
political and economic affairs
 Types of Regional Economic Integration

• FREE TRADE AREA- Group of

countries that remove trade Political
barriers among themselves Union
• CUSTOMS OF UNION- One step
beyond FTA, a custom union Economic
imposes common external policies Union
on non-participating countries
• COMMON MARKET –Permits the
Common
free movements of goods and Market
people
Customs Integration
• ECONOMIC UNION – Members of political
also coordinate and harmonize Unions
economic policies (monetary, fiscal, Common and
and taxation) in order to blend Free Trade Economic economic
their economies into a single area Free Policies affairs
economic entity.
• POLITICAL UNION – integration of
movement
political and economic affairs Common of goods,
external people,
tariff and capital
Removal
of
intragroup
tariffs

WHAT IS REGIONAL ECONOMIC INTEGRATION?

 Regional Economic Integration has enabled countries to focus on issue that are relevant to their stage
of development.
 Can best be define as an agreement between group of countries in 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.

GENERAL 01 02 03
AGREEMENT GATT was As a result: the By mid-1980’s
average tariff in Three Concerns
ON TARIFFS created in 1948
developed for necessary
economies reform
AND TRADE: Technically an dropped
1st : trade in services
AGREEMENT 1948 : 40% nor Intellectual
1948-1994 but NOT an 2005 : 3%
Property protection
wasn’t covered in
ORGANIZATION GATT
In GATT era- trade
growth consistently 2nd:Many loopholes in
One of Major outpaced GDP Merchandise trade
Contribution: Growth needed reforming

Was to Reduce While

World GDP grew 3rd : Global Recessions
the level of fivefold and world
in the 1970s and
1980s led many
Tariffs merchandise governments to
exports grew about invoke non-tariff
100 times when barriers
GATT was phased
out

CHAPTER 9 INTERNATIONALIZATION STRATEGIES

INTERNATIONAL STRATEGIES FOR Involved the sale of products made by

ENTERING FOREIGN MARKETS entrepreneurial firms in their home country to
customers in other countries.
SMEs 3 broad modes for entering foreign Export transactions are complicated. One
market: particular concern is how to overcome the lack of
1. Direct Exports trusts between exporters and importers when
2. Licensing/franchising receiving an order from unknown importers
3. Foreign Direct Investment (FDI) abroad.

Direct Exports Franchising/Licensing


Is essentially the same idea; except it is typically
used in service industries such as fast food.
Great advantage:
SME licensors and franchisors can expand abroad
while risking relatively little of their own capital.
Foreign Direct Investment
FDI may involve strategic alliances with foreign
partners, foreign acquisitions and/or green-field
wholly owned subsidiaries.
INTERNATIONAL STRATEGIES FOR
STAYING IN DOMESTIC MARKETS
Five Main Strategies for SME's to
Internationalize without leaving home country
Exporting indirectly through domestic base export
intremediaries firm that performs an important
middleman function by linking domestic sellers
and foreign buyers that otherwise would not have
been connected.
Direct Trade
Become suppliers for foreign firms
piggybacking on larger foreign entrants.
Piggyback marketing
Defined as stealing, or commandering a wireless
connection.
Example: using your neighbor's connection.
Become Licensees or Franchisees of foreign
brands
Become Licencees or Franchisees of foreign
brands
foreign licensors/franchisors provide training and
technology to operate at world class standars-if
enough learned, possible to discontinue
CHAPTER 10 ADVANTAGES OF ENTERING FOREIGN MARKET
relationships to operate at reap greater etrepreniural
profits.
Become alliance and partner foreign direct
investors
many firms may not be able to successfully defend
their market position.
'' if you can't beat them ,join them! ''
''better than being crushed, so join them ''
Harvest and Exit through sell offs
entrepreneurs may sell an equity stake or the entire
firm to foreign entrants.
Management Savvy
Question:
What determine the success and failure of
entrepreneurial firms aroud the globe?
Answer:
Boils down the Two Components
Institution Based View
It argues that the larger institutional frameworks
explain a great deal about what is beind the
differences in entrepreneurial and economic
development around the world.
Resource Based View
It posits that it is largely intangible resources such
as vision, drive and willingness to take risk that
fuels entrepreneurship around the globe.
Two clear implications for action emerge:
1. Institutions that help entrepreneurship
development both formal and informal which both
are important.
 Formal-rules governing how to set up new
firms
 Informal - norms granting legitimacy to
entrepreneurs.
2. When internationalizing, entrepreneurs are
advised to be bold and venue abroad.
''be bold but not too bold''
 FIRST-MOVER ADVANTAGES LATE-MOVER ADVANTAGES
Benefits that accrue to firms that enter the market first and Benefits that accrue to firms that enter the market later and
that later entrants do not enjoy. that early entrants do not enjoy.

FIRST MOVER ADVANTAGES LATE MOVER ADVANTAGES

• Proprietary, technological leadership
• Opportunity to free ride on first-mover investments
• Pre-emption of scarce resources
• Establishment of entry barriers for late entrants • Resolution of technological and market uncertainty
• Avoidance of clash with dominant firms at home • First movers’ difficulty to adapt to market changes
• Relationship and connections with key stakeholders such
as customers and governments. LAUDE LAUDE

Modes of Entry: The First Steps on Equity versus Non-Equity Modes

NOTE:
MODES OF ENTRY

Methods to enter a foreign a foreign market.

A mountain of research is still unable to conclusively
recommend a particular entry timing strategy. NON-EQUITY MODE
A mode of entering foreign markets through exports and/ or contractual
Entry timing is not the sole determinant of success and agreements that tends to reflect relatively smaller commitments to over
failure of foreign entries. It is through interaction with seas markets.
other strategic variables that entry timing has an EQUITY MODES
impact on performance. A mode of entering foreign markets through JV’s and/or WOS’s that
indicates a relatively larger, harder-to-reverse commitment.
LAUDE SEMSON

Modes of Entry: The First Steps on Equity versus Non-Equity Modes Modes of Entry: Advantage and Disadvantages

Managers prioritize and consider only a few key variables first and Entry Modes Advantages Disadvantages

then consider the other variable later. 1. Non-Equity Modes:

Exports
Consideration for small- versus large-scale entries usually boils Direct Exports  Economic of sale in High transportation cost for
production concerned in bulky products
down to the equity (ownership) issue. home country. Marketing distance from
 Better control over customers
distribution. Trade barrier and protection.
Drawback of the small-scale entries:
Indirect Exports  Concentration of resources Less control over distribution
on production. (relatively to direct exports)
 No need to handle export Inability on how to compete
processes. overseas.
- Lack of strong commitment leads,
which may lead to difficulties in building
market share and capturing first mover
advantages.

SEMSON SEMSON

SEMSON
Modes of Entry: Advantage and Disadvantages Modes of Entry: Advantage and Disadvantages
Entry Modes Advantages Disadvantages
Entry Modes Advantages Disadvantages
3. Equity Modes: Partially owned
Subsidiaries 2. Non-Equity Modes: Contractual
Joint Ventures Sharing cost, risk, and profits Divergent goal and interest of partners Agreements
Access to partners knowledge and Limited equity and operational control.
assets Difficult to coordinate globally. Licensing / Franchising Low development cost Little control over technology and
Politically acceptable. Low risk in overseas expansion. marketing
May create competitors.

4. Equity Mode: Wholly owned
Subsidiaries
Gross field Projects Complete equity and operational
control.
Protection of know-how
Ability to coordinate globally
Acquisitions Same as green field(above)
Do not add new capacity
Fast entry speed
Turnkey Projects Ability to earn returns from process May create efficient competitors.
technology in countries where FDI is Lack of long term presence.
restricted.
Potential political problems and risks
High development cost
Research and development (R&D) Co Ability to tap into the best locations for Difficult to negotiate and enforce
Add new capacity to industry
ntracts certain innovation at low cost. contracts.
Slow entry speed(relative to
May nurture innovation competitors
acquisition)
May lose core innovation capabilities.
Same as green field(above) except
adding new capacity and new speed.
Ability to reach more customer. Limited coordination.
Post acquisition integration problems.
Co- Marketing

SEMSON
 Modes of Entry: The Second Step in Making Actual Selections Modes of Entry: The Second Step in Making Actual Selections

RESEARCH AND DEVELOPMENT (RAD) CONTRACT Managers consider variables within each group of non-equity
and equity modes.
Outsourcing agreements in R&D between firms.
TURNKEY PROJECT
WOLLY OWNED SUBSIDIARY (WOS) A project in which contractors to design and construct new facilities
and train personnel.
A subsidiary located in a foreign country that is entirely owned by the
parent multinational.
BUILD-OPERATE-TRANSFER (BOT) AGREEMENT
GREEN FIELD OPERATION A non-equity mode of entry used build a longer term presence by
building and then operating a facility for a period of time before
Building factories and offices from scratch (on a proverbial piece of
transferring to a domestic agency or firm.
“green field” formerly used for agricultural purposes).
SEMSON SEMSON

CHAPTER 11: MAKING ALLIANCES & ACQUISITIONS WORK

STRATEGIC ALLIANCES Equity – based alliances

- Are “Voluntary agreements between firms - Are based on ownership or financial
involving exchange, sharing, or developing interest between the firms.
of products, technologies, or services. - They include strategic investment (one
- Examples: partner invest in another) and cross-
Ford and Eddie Bauer. You might remember the shareholding (each partner invest in the
Ford Explorer Eddie Bauer edition. ... other.)
Spotify and Uber. ...
Google and Luxottica. ... Acquisition
Hewlett-Packard and Disney. ... - is a transfer of the control of operations and
Starbucks and Barnes & Noble management from one firm (target) to
another (acquirer), the former becoming a
Contructual (Non – equity – based) alliances unit of the latter.
- Are associations between firms that are Example: GM Daewoo is now a unit of GM.
based on contracts and do not involve the Merger
sharing of ownership. - The combination of operations and management
- Include co – marketing research and of two firms to establish a new legal entity.
development (R&D) contracts, turnkey Example: the merger between South African
projects, strategic suppliers, strategic Brewery and Miller beer result in SABMiller.
distributors, and licensing/franchising.
 Institutional-based View
formal institutions
Antitrust and entry mode concern
Informal institutions
(normative and cognitive pillars)

Alliance
And
Acquisitions
Resource-based View
Value
Rarity
Imitability
Organization

Formal institutions affects alliance and acquisitions
is through formal requirements on markets entry
mode. In many countries, governments discourage
or simply ban acquisitions to establish wholly
owned subsidiaries (WOSs), thereby leaving some
sort of alliance with local firms as the only choice
for FDI.
Two trend have emerged in the entry mode
requirements dictated by formal government
policies:
1. General trend towards more liberal policies.
2. Noticeable trend is that many government
still impose considerable requirements,
especially when foreign firm acquire
domestic assets.
US regulations limit foreign carriers to a
maximum 25% of the equity in any US airline, and
EU regulations limit non-EU ownership of EU-
based airlines to 49%.
Informal institutions also influence alliances and
acquisitions.
• The first set of informal institution centers on
collective norms, supported by a normative pillar.
A core idea of institution-base view is that because
firms want to enhance or protect their legitimacy,
copying what other reputable organizations are
doing – even without knowing the direct
performance benefits of doing so- may be a low-
cost way to gain legitimacy. Therefore when a firm
sees competitors entering alliances that firm might
jump on the alliance bandwagon just to be safe
rather than risk ignoring industry trends.

The Three Broad Categories of Value Creations

ADVANTAGES ADVANTAGES
DISADVANTAGES

Alliance may reduce costs, risk, and Choosing wrong partners

uncertainties

Alliance allow firms to top into partners’ Potential partner opportunism

complementary assets and facilitate learning

Possibility to use alliance as a real options Risk of helping future competitors

REAL OPTION is an investment in real operation
as opposed to financial capital.
A real operations view suggests two propositions:
1. In the first phase, an investor makes a
small, initial investment to buy an option,
which leads to the right to future
investment but is not an obligation to do so.
2. The investors then holds the option until the
decision point arrives in the second phase
and then decide between exercising the
option or abandoning it.
Alliance have a number of non-trivial drawbacks
• First, there is always a possibility of being stuck
woth the wrong partner(s).
• Firms are advise to use a prospective partner with
caution, preferably a known entity.
• The partner should be sufficiently differentiated
to provide some complementary (non-overlapping)
capabilities.
*Rarity is also a factor in alliance because the
ability to successfully manage interfirm
relationship- often called relational or
(collaborative) capabilities- maybe rare. Managers
involve in alliance require a relationship skill
rarely covered in the traditional business school
curriculum, which typically emphasizes
competition rather than collaborations.
• words such as “courtship”, “marriage”, and
divorce are often used when discussing alliance.
*Imitability occurs at two alliances
● firm level
● Alliance level
Alliances
between rivals can be dangerous because they may
help competitors. By opening their doors to
outsiders, alliance make it easier to observe and
imitate firm-specific capabilities.
A learning
race is a situation that can arise in which alliance
partners aim to learn the other firm’s tricks- imitate
its resources as fast as possible.
Another
imitability issue is the trust and understanding
among partners in successful alliance. Firms
without genuine trust and understanding may have
hard time to faking it.
CHAPTER 12 KNOWLEDGE
MANAGEMENT
Knowledge management is the systematic
management of an organization's knowledge assets
for the purpose of creating value and meeting
tactical & strategic requirements; it consists of the
initiatives, processes, strategies, and systems that
sustain and enhance the storage, assessment,
sharing, refinement, and creation of knowledge.
Within business and KM, two types of knowledge
are usually defined, namely explicit and tacit
knowledge.
Explicit Knowledge
 This type of knowledge is formalized and
codified, and is sometimes referred to as
know-what (Brown & Duguid 1998). It is
therefore fairly easy to identify, store, and
retrieve (Wellman 2009). This is the type of
knowledge most easily handled by KMS,
which are very effective at facilitating the
storage, retrieval, and modification of
documents and texts.
 Explicit knowledge is found in: databases,
memos, notes, documents, etc.
Tacit Knowledge
 This type of knowledge was originally
defined by Polanyi in 1966. It is sometimes
referred to as know-how (Brown & Duguid
1998) and refers to intuitive, hard to define
knowledge that is largely experience based.
Because of this, tacit knowledge is often
context dependent and personal in nature. It
is hard to communicate and deeply rooted
in action, commitment, and involvement
(Nonaka 1994).
 Tacit knowledge is also regarded as being
the most valuable source of knowledge, and
the most likely to lead to breakthroughs in
the organization (Wellman 2009). Gamble
& Blackwell (2001) link the lack of focus
on tacit knowledge directly to the reduced
capability for innovation and sustained
competitiveness.
CHAPTER 13 MULTINATIONAL STRATEGIES AND STAFFING APPROACHES

STAFFING
-refers to HRM activities associated with hiring
employees and filling positions.

Two types employees:

1. Host Country Nationals (HCNs) –are from the host country and are
often known “locals”.
• Expatriates are individuals working in a foreign country. For
example: The general manager at the Portman Ritz-Carlton Hotel is
an expatriate, and all of the Chinese employees he hired are HCNs.

2. Parent Country Nationals (PCNs) – come from the parent country of

the MNE and work at its local subsidiary.
• Example: For the US-based Ritz-Carlton, PCNs would be Americans.

STAFFING
● Third Country Nationals (TCNs) – comes from neither the parent country
nor the host country.
• For example: For the Portman Ritz-Carlton, TCNs can be from any country
other than the United States and China.
ADVANTAGES DISADVANTAGES
HOST COUNTRY • Language and cultural barriers are • Control and coordination by
NATIONALS (HCNs) eliminated headquarters may be impeded
• Continuity of management improves, • HCNs may have limited career
since HCNs stay longer in positions opportunity
• Usually cheaper • International experience for PCNs are
limited.
POST COUNTRY • Control by headquarters is facilitated • Opportunities for HCNs are limited
NATIONALS(TCNs) • PCNs may be the most qualified people • Adaptation may take a long time
• Managers are given international • PCNs are usually very expensive
experience

THIRD COUNTRY • TCNs may bridge the gap between • Host government and employees may
NATIONALS (TCNs) headquarters and the subsidiary (and resent TCNs
between PCNs and HCNs) • Similar to disadvantages for PCNs.
• TCNs may be less expensive than PCNs

Approaches in STAFFING
Ethnocentric Approach emphasizes the norms and practices of the parent
company (and the parent country of the MNE)by relying on PCNs. Not
only can PCNs ensure and facilitate control and coordination by
headquarters, they may the best qualified people for the job because of
special skills and experience. A perceived lack of talent and skills among
HCNs often necessitate an ethnocentric approach.
SKETCHES
Polycentric Approach (opposite of ethnocentric approach) focuses on
theCODING
norms and practices of the host country. In short, “when in Rome, do
as the Romans do”.
“Who would make the best manager of operations in Rome?
TESTING
-Naturally, Roman (or Italian) managers – technically HCNs.
 Approaches in STAFFING
Geocentric Approach (disregarding nationality) – focuses on finding the
most suitable managers, who can be PCNs, HCNs, or TCNs. In other words,
a geocentric approach is color-blind; the color of a manager’s passport
does not matter. For a geographically dispersed MNE, a geocentric
approach can help create a corporate-wide culture and identity.
MNE Strategies Typical Staffing Approaches Typical top managers at local
SKETCHES subsidiaries.
Home Replication Ethnocentric Parent-country nationals

Localization Polycentric Host-country nationals

Global Standardization Geocentric A mix of parent-,host- and

third-country nationals
Transnational Geocentric A mix of parent-,host- and
third-country nationals

CHAPTER 14 CSR- HOW TO ADDRESS

Corporate Social Responsibility - Is the consideration or response to, issues beyond the narrow economic,
technical and legal requirements of the firm to accomplish social benefits along with the traditional economic
gains that firm seeks.

CSR- related resources can include intangible skill technologies and processes as well as intangible skills and
attitudes

THE STRATEGIC
RESPONSE FRAMEWORK

Both normative and cognitive

Indicated by relatively - A strategy that would only respond standpoints, it becomes - A strategy characterized by some
legitimate or a matter of social support from top managers who may
little or no support by to CSR causes when required by
obligation to accept responsibility
top management disaster and outcries. to do all that is required increasingly view as CSR as a
worthwhile endeavor

REACTIVE DEFENSIVE ACCOMMODATIVE PROACTIVE

Focused on Top management at a proactive firm

- A strategy that focuses on Regulatory - A strategy that anticipates CSR and not only support and champions
regulatory le actual commitment to compliance endeavors to more than is required CSR activities but also view CSR
CSR by top management as source of differentiation.