Relationship Between Quality of

National Governance and Per-Capita GDP

Note: The World
Bank measures
national
governance using
six variables:
public
accountability,
political stability,
government
effectiveness,
regulatory quality,
rule of law, and
control of
corruption

Sources: International Monetary Fund, World Economic Outlook Databases, www.imf.org; World Bank,
27
Worldwide Governance Indicators, 2018, www.info.worldbank.org.
 Firm Internationalization: Two Types
Internationalization Process Born Global
Domestic Focus Domestic Focus

Pre-export Stage Active Involvement

Experimental Involvement
Committed Involvement

Active Involvement

Committed Involvement

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 Born Globals and International Entrepreneurship
• Small and medium-sized enterprises (SMEs) are firms with ≤ 500
employees
• SMEs comprise more than 90% of all firms and more than 90% of all
exporting firms. They represent one-third of total export value (e.g., US
Small Business Administration).

• Globalization and advanced technologies have greatly reduced

internationalization costs
• Many SMEs undertake early, substantial internationalization – the
“born global” firms
• ‘International Entrepreneurship’ has become a recognized area of
inquiry.
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 International Entrepreneurship, cont’d
• An optimistic, contemporary trend – any firm can participate
actively in international business
• However, born globals face three types of liabilities:
Smallness, youth, and internationalization
• Key resources and capabilities for success:
-- International entrepreneurial orientation
-- Networks of supportive contacts
-- Market orientation
-- Knowledge
-- Learning orientation
-- Innovativeness
-- Flexibility and adaptiveness
-- Leveraging digital technologies
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 FDI Theories: Monopolistic Advantage Theory
• Argues that MNEs prefer FDI because they can more effectively use
their monopoly power, that is, control of their core resources and
capabilities, to achieve success in the foreign market.

• Key sources of monopolistic advantage include proprietary

knowledge, patents, unique know-how, and sole ownership of other
assets

Example
Novartis earns substantial profits by marketing various patent
medications through its subsidiaries worldwide. Novartis owns or
developed various patents, key knowledge, and R&D methods in the
pharmaceutical industry.
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 FDI Theories: Internalization Theory
• The theory explains how the MNE chooses to acquire and internally
maintain one or more value-chain activities.
• The internalization of value-chain activities provided by direct ownership
provides the MNE with greater control over its foreign operations.
• Internalization avoids the drawbacks of dealing with external partners,
such as reduced quality control and the risk of losing proprietary assets
to outsiders.
Example
In China, Intel owns much of its value chain, to ensure that Intel knowledge,
patents, and other assets are not misused or illicitly obtained by potential
rivals. Intel owns or controls various types of intellectual property in the
semiconductor and information technology industries.

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 FDI Theories: Dunning’s Eclectic Paradigm
• According to this view, the decision on whether or not a firm will enter
a foreign country via FDI is determined by three types of advantages:
1. Ownership-specific advantages – similar to competitive advantages,
they are the knowledge, skills, capabilities, relationships, or physical
assets that the firm owns.
2. Location-specific advantages – similar to comparative advantages,
they are specific advantages in the country the MNE has entered, or
seeks to enter, such as natural resources, cheap labor, or knowledge
workers
3. Internalization advantages – based on internalization theory, they
reflect the control obtained from internalizing production, distribution,
or other value chain activities in the firm’s foreign operations
33