Liability of Foreigness

1. High pressure for local adaptation combined with low pressure for lower costs would suggest what type of international strategy: A. global B. multidomestic C. transnational D. overall cost leadership 2. Foreign direct investment includes the following form of entry strategy: A. licensing B. franchising C. joint ventures D. exporting 3. According to Michael Porter, firms that have experienced intense domestic competition are A. unlikely to have the time or resources to compete abroad. B. most likely to design strategies aimed primarily at the domestic market. C. more likely to design strategies and structures that allow them to successfully compete abroad. D. more likely to demand protection from their governments.

This paper contributes to the global strategy literature by outlining the four debates that we believe to be frontier issues with which the field will engage in the years to come. Its purpose is to review four current debates taking place in the field of global strategic management and international business. The review provides in-depth coverage of the four major global strategic management debates, comprising: (1) cultural vs institutional distance; (2) global vs regional geographic diversification; (3) convergence vs divergence in corporate governance, and (4)

The rapid development of economy promotes the development of multinational companies, which have become a general form rather than a special form of a company. Multinational companies carry a lot of money, production technology, management expertise and sales channels to expand their business around the world. There is no doubt that multinational companies will become the subject of an act of international relations and play an increasingly large impact on international relations.

“A multinational enterprise is a company that is headquartered in one country but has operations in one or more other countries” (Rugman and Collison, 2012). A firm on the other side operates within the national borders of a country. Some firms want to expand, not only in sizes but also in value and market share, by becoming MNEs. This is due to the fact that it can bring remarkable advantages even though is very risky. MNEs perform international business operations named as: Exports and Imports, Foreign Direct Investment (FDI). The first branch includes the goods and services that are produced in a country and sold in another one and vice versa, the second branch consists in equity funds invested in foreign countries. It is when firms begin to use FDI that they become MNEs.

Strategy has come to play a significant role in international business (IB) in recent times. This is predicated on the fact of complexities associated with globalisation. The interplay of various factors of production in an environment could have been sufficient for MNEs in taking investment decisions. However, experience has shown otherwise. In this light, strategising in the international business arena has been dominated by industry and resource based views, somewhat ignoring the magnitude of institutional impact on investment decisions.

The eclectic paradigm (Dunning, 1988) proposes that there are patterns determined by the configuration of the different advantages as perceived by a company and these are the motor for understanding internationalization. Because of more abundance in resources and knowledge, companies have more chances of succeeding in their home markets. Therefore the main point of the eclectic paradigm, proposes that there must exist a competitive advantage that levels the field for a foreign company to compete with local companies and still have a chance of succeeding. These advantages need to surpass the break-even of costs for setting up operations in a foreign country. This paradigm contrasts with modern theories of MNCs, which propose that instead of existing a competitive advantage strong enough to motivate the internationalization of operations, the factor behind this company behavior has to do with market failure due to high transaction costs. It is debated whether exploiting transaction or ownership advantages leads to the most successful

Chang, J. (2011). The early and rapid internationalization of Asian emerging MNEs. Competitiveness Review, 21(2), pp.171-187.

When a firm decides to go international with their business they must face many competitive decisions. Two of the most important decisions a company will face are the pressures for cost reduction and pressures for local responsiveness. The pressure of cost reduction forces a firm to lower their value of the cost of creation. Firms can outsource to places where costs of their products are much cheaper or they can mass-produce a standardized product in one location. A firm must have the feeling of local representation. Every country has its own way of life. If a company does not adhere to each country’s differences in traditional business practices, distribution channels, and the demands

Tatum (2010) proposes that multinationals operate in different structural models. The first and common model is for the multinational corporation positioning its executive headquarters in one nation, while production facilities are located in one or more other countries. This model often allows the company to take advantage of benefits of incorporating in a given locality, while also being able to produce goods and services in areas where the cost of production is lower (Ozoigbo and Chukuezi, 2011). The second structural model is for a MNC to base the parent company in one nation and operate subsidiaries in other countries around the world. With this model, just about all the functions of the parent are based in the country of origin. The subsidiaries more or less function independently, outside of a few basic ties to the parent. A third approach to the setup of an MNC involves the establishment of a headquarters in one country that oversees a diverse conglomeration that stretches to many different countries and industries (Tatum 2010; Robinson 1979). With this model, the MNC includes affiliates, subsidiaries and possibly even some facilities that report directly to the headquarters. Such direct investment means the extension of the managerial control across national boundaries (Gilpin, 1987). Rugman et al (1985), who prefer to use the name

The nationally based business will start with cautious testing of new markets, often selected with a similar culture, having a focus that is culturally and managerially ‘ethnocentric ' or centered around the home market. A multinational business will have a ‘polycentric ' orientation, i.e. a focus based on the understanding and appreciation of different operating contexts. (Cohen 195)

The stakes of companies entering into a global market are much higher than those that choose to stay

Another very common approach to explain foreign market entry strategies is Dunning’s (1980) famous OLI framework. In his view, companies become more actively involved in international business activities if they possess a set of three main advantages, namely ownership, location and internalization advantage. Ownership advantage refers to the unique firm-specific resources, including both tangible and intangible assets that contribute to enhancing the competitiveness of the firm in the foreign market. Location advantage refers to how firms choose the country or region where to engage in international activities with respect to the availability as well as the costs of resources such as raw materials or favourable wage levels. Location advantage

Business Strategy approach: - this is based on the idea of Pragmatism (Welford and Prescott, 1994) with the company making trade-offs between a number of unstable decision to internationalize and the way it adopts to do so Reid (1983) argues that foreign expansion is contingency based and

• International companies are in a position to exploit three sources of competitive advantage --– global efficiencies, multinational flexibility, and worldwide learning --– that are unavailable to domestic firms. The text provides examples

H There is now a consensus of opinion that the propensity of an enterprise to iNTRoDucTtoN engage in international production-that financed by foreign direct investmentThe Underlying rests on three main determinants: first, the