© 2013 cengage learning. all rights reserved. chapters 4 & 6 global2 peng © nadine...
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© 2013 Cengage Learning. All rights reserved.
CHAPTERS 4 & 6
GLOBAL2 PENG
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Leveraging Resources Leveraging Resources &&
SWOT ANALYSIS
Strengths and Weaknesses – internal assessment of the organization leading to management decisions.
Opportunities and Threats – external assessment of the business environment to identify the uncontrollable events that might impact management decisions.
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RESOURCES AND CAPABILITIES(terms are used interchangeably in this text)
The tangible and intangible assets a firm uses to choose and implement its strategies.
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UNDERSTANDING RESOURCES AND CAPABILITIES
Tangible resources and capabilitiesAssets that are observable and easily quantified.
Intangible resources and capabilitiesAssets that are hard to observe and difficult (if not impossible) to quantify.
OUTSOURCING
OutsourcingTurning over an organizational activity to an outside supplier that will perform it on behalf of the focal firm.•Offshoring – foreign firm•Onshoring (inshoring) – domestic firm
Captive sourcingSetting up subsidiaries abroad so that the work done is in-house but the location is foreign. Also known as foreign direct investment (FDI).
TWO-STAGE DECISION MODEL
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VRIO FRAMEWORK
alue – do firm resources and capabilities add value?
arity – how rare are the resources and capabilities?
mitability – valuable and rare resources provide competitive advantage only if they are rare.
rganizational – valuable, rare, and hard to imitate resources must be well organized.
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VRIO FRAMEWORK AND FIRM PERFORMANCE
Sources: J. Barney, Gaining and Sustaining Competitive Advantage, 2nd ed. (Upper Saddle River, NJ: Prentice Hall, 2002) 173; R. Hoskisson, M. Hitt, and R. D. Ireland, Competing for Advantage (Cincinnati: Thomson South-Western, 2004) 118. 9
VALUE
Only value-adding resources provide competitive advantage.
Non-value-adding resources may lead to competitive disadvantage.
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RARITY
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• Intellectual property (IPR)• Reverse engineering
IMITABILITY
Imitation is difficult because of causal ambiguity, which means the difficulty of identifying the actual cause of a firm’s success. Outsiders usually have a hard time understanding what a firm does inside its boundaries. Additionally, even managers of a firm often do not know exactly what contributes to their success.
Example: Barbie
Other examples?
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KEY TERMS ASSOCIATED WITH FDI
Terms to know: Foreign direct investment (FDI) Foreign portfolio investment (FPI) Horizontal FDI Vertical FDI FDI flow FDI inflow FDI outflow
FDI VOCABULARY
Foreign direct investment (FDI)Putting money in activities that control and manage value-added activities in other countries (UN: equity stake of 10% or more)
Foreign portfolio investment (FPI)Holding securities, such as stocks and bonds, of companies in countries outside one’s own but does not entail the active management of foreign assets (foreign INdirect investment)
•Management control rightsAuthority to appoint key managers and establish
control mechanisms (adequate % equity required to accomplish control/ownership)
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
FDI VOCABULARY
FDI flow - The amount of FDI moving in a given period (usually a year) in a given direction.
•FDI inflowFDI moving into a country in a year.
•FDI outflowFDI moving out of a country in a year.
© 2013 Cengage Learning. All rights reserved.
HORIZONTAL FDI
When a firm takes the same activity at the same value-chain stage from its home country and duplicates it in a host country.
© 2013 Cengage Learning. All rights reserved.
VERTICAL FDIWhen a firm moves upstream or downstream in different value-chain stages in a host country through FDI.
UPSTREAM AND DOWNSTREAM VERTICAL FDI
Upstream vertical FDIUsing FDI in an earlier activity in the value
chain
Downstream vertical FDIUsing FDI in an later activity in the value
chain
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
© 2013 Cengage Learning. All rights reserved.
WHY DOES FDI TAKE PLACE?
FDI provides gains to a firm through OLI
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HOW DOES FDI RESULT IN OLI ADVANTAGES?
OWNERSHIP ADVANTAGES – possession and leveraging of certain valuable, rare, hard-to-imitate, and organizationally embedded (VRIO) assets overseas in the contect of FDI.
Direct is the key word in FDI. Direct ownership provides combination of equity ownership rights and management control rights. Licensing – selling technology or intellectual property for a fee
© 2013 Cengage Learning. All rights reserved.
OWNERSHIP ADVANTAGES
FDI vs. Licensing
OLI ADVANTAGES
LocationFeatures unique to a place, such as its natural or
labor resources or its location near particular markets, that provide certain advantages to firms doing business there
InternalizationReplacement of cross-border markets (such as
exporting and importing) with one firm (the MNE) locating and operating in two or more countries
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
© 2013 Cengage Learning. All rights reserved.
LOCATION ADVANTAGES
Some locations possess geographical features that are difficult to match.
Location advantage can arise from agglomeration – the clustering of economic activities in certain locations.
Wichita KS – Who knew?
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LOCATION ADVANTAGES
Results from: Knowledge spillover – diffusion of
knowledge from one firm to others among closely located firms that attempt to hire individuals from competitors.
Industry demand for skilled workers
Industry demand that facilitates a pool of specialized suppliers and buyers in a region
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ACQUIRING AND NEUTRALIZING LOCATION ADVANTAGES
When one firm enters a foreign country through FDI, competitors are likely to increase FDI in order to acquire or neutralize location advantages.
Why?
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THE BENEFITS OF INTERNALIZATION
Replaces external market relationship with single organization (the MNE) spanning both countries—owning, controlling, and managing.
Reduces cross-border transaction costs.
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
© 2013 Cengage Learning. All rights reserved.
BENEFITS AND COSTS OF FDI TO HOST COUNTRIES
Benefits1. Capital inflow2. Technology
spillovers3. Advanced
management know-how
4. Creates jobs
Benefits1. Capital inflow2. Technology
spillovers3. Advanced
management know-how
4. Creates jobs
Costs1. Loss of
economic sovereignty
2. Loss of domestic firms
3. Capital outflow
Costs1. Loss of
economic sovereignty
2. Loss of domestic firms
3. Capital outflow
© 2013 Cengage Learning. All rights reserved.
BENEFITS AND COSTS OF FDI TO HOME COUNTRIES
Benefits1. Repatriated
earnings from FDI profits
2. Increased exports
3. Learning via FDI from operations abroad
Benefits1. Repatriated
earnings from FDI profits
2. Increased exports
3. Learning via FDI from operations abroad
Costs
1.Capital outflow
2. Job loss
Costs
1.Capital outflow
2. Job loss
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