International Management : The Process of Internationalization and Market Entry Strategies

This textbook for students and practitioners offers answers to the most important questions and challenges of international management. The main topics are presented and discussed on three levels: (a) the macroeconomic and institutional environment of the global economy, (b) the international firms embedded as players in this environment, and (c) the actual management decisions. The focus is placed both on the characteristics of the individual subject areas (macro-, meso- and microperspective) and on the interdependent connections between these areas. The main interest of this book lies in an application-oriented analysis of the central strategic management decisions in internationalizing companies. This textbook has been recommended and developed for university courses in Germany, Austria and Switzerland. Contents Market entry strategies Theories in international management (concepts and applications) Managerial decision-making and entry strategies (theory vs. reality) Core structure of the global economy and the internationalizing firm The role of evolutionary theory and decision-making in the process of internationalizing firms The author Prof. Dr. Manfred Fuchs is Adjunct Professor of International Management and heads the International Management specialization of the Business Administration masters degree program at the University of Graz. From 1989 to 1995 he was a research assistant at the Starnberger Institut e.V.; 1997/1998 visiting professor at the College d'Europe in Bruges. Manfred Fuchs has been working at the University of Graz since 1995 and conducted extensive field research in the Philippines, China, Colombia, Thailand and Malaysia Acknowledgments Contents List of Figures List of Tables 1: Introduction Study Questions References 2: The Global Economy as the Macro-Environment 2.1 Globalization or Internationalization? Globalization Stages of Globalization Global Cut Flower Industry 2.2 The Duality Between Structure and Agency 2.2.1 Upward and Downward Conflation of Structure and Agency The Co-evolution of Agency and Structure 2.2.2 Structure and Agency: A Morphogenetic Approach The Emergence of a Rule Is the Outcome of Previous Social Interactions 2.3 Core-Periphery Relations and the New Economic Geography Agglomeration 2.4 Agglomeration and Gravity Equation Urban Agglomeration 2.5 Interpreting the Data on the World Economy 2.5.1 Gross Domestic Product: Its Pattern and Structure 2.5.1.1 Development of Gross Domestic Product How to Measure the Gross Domestic Product 2.5.1.2 Structure of GDP Capture the Inequality 2.5.2 World Trade: Its Pattern and Structure 2.5.2.1 Development of Trade 2.5.2.2 The Structure of Trade Between and Within Regional Economies 2.5.3 Foreign Direct Investment: Its Pattern and Structure 2.5.3.1 The Development of FDI Foreign Direct Investment (FDI) 2.5.3.2 Pattern and Structure of FDI The Distributive Pattern of FDI 2.5.4 The Multinational Firm Multinationality of Firms Defining the Multinational Firm 2.5.4.1 The Impact of Large Multinational firms 2.5.4.2 The Prolonged Power of the Multinational Firm Study Questions References 3: Theories of Internationalization Mainstream Theories Matter 3.1 Foreign Trade Theories and International Business Model 3.1.1 Classical and Neoclassical Trade Theory 3.1.2 Mercantilism Example 3.1.3 From Mercantilism to Deregulation Laissez-Faire, Laissez-Passer 3.1.4 From Country-Specific Factors to Factor-Specificity in Trade Absolute Advantage 3.1.5 Comparative (Cost) Advantages In His Principles of Political Economy and Taxation Ricardo Offers the Following Account on that Matter: 3.2 Foreign Direct Investment and the Theory of the Multinational Firm 3.3 Technology, Product Lifecycles, and the Internationalization of Business Firms 3.3.1 Technological Gaps and the Learning Curve Inconsistencies Across Countries 3.3.2 Product Lifecycle 3.3.3 PLC Affecting the Internationalization of the Multinational Firm 3.4 Neo-Institutional Approaches Explaining Diversification and Internalization 3.5 Vertical Integration and Horizontal Expansion Vertical Integration in the Steel Industry 3.6 Property Rights, Externalities, and Ronald Coase Property Rights 3.7 Transaction Costs and Ronald Coase How a Market Works The Entrepreneur-Co-ordinator 3.7.1 Enforcing Control and the Costs of Transaction 3.7.2 The Firm as a Nexus of Contracts and Transaction Costs Frictions as a Source of Inefficiency 3.7.3 Asset Specificity, the Frequency of a Transaction, and Uncertainty The Costs of Transactions Example Why Transaction Costs Matter 3.8 Internalization Theory Internalization and Market Power 3.9 Edith Penrose ́s Theory of the Firm The Bundling of Resources Matters 3.10 Firm Specificity, Location, and Internalization: The ``OLI ́ ́ Paradigm 3.11 Internationalization as an Evolving Process 3.11.1 Reijo Luostarinen: The Internationalization of the Firm 3.11.2 Johanson and Vahlne: The Process of Internationalization The Original Study of the Uppsala School 3.11.3 Modifications and Extensions of the Original Uppsala Model Conclusion Study Questions References 4: Market Entry Decisions 4.1 Entry Mode Choice Four Major Aspects of the Entry Mode Decision 4.1.1 The Rational Decision Maker in Entry Mode Choices 4.1.2 A Descriptive or Prescriptive Approach 4.1.3 Uncertainty 4.1.3.1 Uncertainty and Sequential Nature of Entry Modes Entry Mode Choice and Unfamiliarity Managerial Decision Making as a Co-evolving Process 4.1.3.2 Contingency and Uncertainty 4.1.3.3 Misfit of Entry Modes 4.2 Planning the Entry Mode Choice Entry Mode Choice 4.2.1 Franklin Root and the Entry Strategy The Complexity of Planning Market Entry Strategies Franklin Root ́s Approach 4.2.2 Way Station Model to Entry Mode Choices 4.2.3 Choosing One Entry Mode or Combining Several Entry Modes 4.3 Entry Mode Studies 4.4 Institutional, Cultural and Transactional Costs Affecting Entry Mode Choice The Problem of Measuring Transaction Costs 4.4.1 Lack of Knowledge About Feasible Markets and the Problem of Distance Measures The Limits of Extensive Planning 4.4.2 Product Readiness Levitt on Globalization 4.4.3 Assessing Risks with PESTEL 4.4.4 Maximizing Profits and the Rational Entry Mode Choice 4.4.5 Managerial Experience and Export Orientation 4.4.6 Motives to Internationalize 4.4.7 The Pattern and Scope of Internationalization 4.4.8 Liability of Foreignness Study Questions References 5: Market Entry Modes 5.1 Export 5.1.1 Export Pattern and Trade Firm Size and Export Shares 5.1.2 How to Define Exports Exports and Value Added by Imports 5.1.3 Inter-firm and Intra-firm Trade 5.1.4 How Do Firms Export 5.2 Licensing License 5.2.1 Licensing and Agency Problems 5.2.2 Licensing Mixed with Other Entry Modes 5.2.3 Compulsory Licensing Patent or License? 5.2.4 Licensing and Learning Attributes 5.2.5 Factors Affecting the Licensing Choice 5.3 Franchising Franchise System 5.3.1 The Pros and Cons of Franchising 5.3.2 Performance, Learning and Productivity in Franchising Factors Affecting the Performance of Franchising 5.3.3 Why Do Intellectual Property Rights Matter? The International Patent Classification 5.3.3.1 Copyright 5.3.3.2 Patents 5.3.3.3 Trademarks 5.3.3.4 Industrial Designs 5.3.3.5 Trade Secrets The Use of IP Rights in International Business 5.4 Entry Modes and Asset Commitment Example 5.5 International Joint Ventures International Joint Venture (IJV) 5.5.1 Joint Venture Goals 5.5.2 High Failure Rates in IJVs 5.5.3 Major Motives for IJVs 5.5.4 Performance and IJV Stability 5.5.5 Messy Research 5.5.5.1 Reciprocity 5.5.5.2 Trust 5.5.5.3 Opportunism 5.5.5.4 Forbearance 5.6 Wholly Owned Subsidiary as Entry Mode Strategy 5.6.1 WOS and Control Example Wholly Owned Subsidiary (WOS) 5.6.2 The WOS and Liability of Foreignness (LoF) 5.6.3 The Role of MNE Subsidiaries Study Questions References 6: The Coordination and Configuration of Global Value Chains (GVCs) 6.1 Coordination and Control Between and Within Firm Boundaries 6.2 Coordination and Configuration The Manufacturing Map of Two Large Multinational Firms 6.2.1 Hierarchy and Control 6.2.2 The Boundaries of the Firm and Value-Adding Activities The Firm Is a Complex of Joint Sequential Decision Processes 6.2.3 Value-Adding Activities as a Chain of Interrelated Activities Defining the Value Chain 6.2.4 Coordination and Configuration of Cross-Border Value Activities 6.2.5 Managing Interlocked Patterns of Cross-Border Value Adding Activities 6.3 Global Value Chains and Firm Networks Global Value Chains (GVCs) 6.4 GVC Analytical Framework Charles Babbage as the Originator of GVCs 6.4.1 Input-Output Structure of GVCs Global Poultry Farms Fresh Fruits and Vegetables 6.4.2 Geographical Scope of Global Value Chains 6.4.3 Governance Structure of the Global Value Chains 6.4.4 Upgrading Within a GVC Mexican Apparel Industry 6.4.5 Local Institutional Context of a GVC 6.4.6 Industry Stakeholders Study Questions References 7: The Management of the Multinational Firm 7.1 The Early Focus on Managing Large Industrial Enterprises 7.2 The Meaning of Management 7.3 The Rise and Success of the Multidivisional Structure 7.3.1 General Motors ́ Transformation from the U-Form to the M-Form 7.3.2 The New Multidivisional Structure of Alfred Sloan Jr. 7.3.3 The Fundamental Principles of the Sloan Structure Resisting Change Implementing Change 7.4 The Tortuous Evolution of the Multinational Firm 7.5 The Stopford/Wells Model Example Example 7.6 The Heterarchical Multinational Firm 7.7 Diverging Worlds in Global Strategies 7.8 The Transnational Approach and the Needs of the Multinational Firm 7.8.1 Managing Conflicting Demands Within the Multinational Firm 7.8.2 The International Management Mentality 7.8.3 Global Management Mentality 7.8.4 Multinational Management Mentality 7.8.5 A Transnational Solution? 7.9 Global Integration or Local Responsiveness Corning Glass 7.9.1 Staying Global or Becoming Multi-Domestic 7.9.2 Forces that Legitimize a More Rigorous Global Strategic Integration 7.9.3 Forces that Push the Business Units Toward More Local Responsiveness Heineken and Kärcher Market Concentration Study Questions References Correction to: Theories of Internationalization Correction to: Chapter 3 in: Fuchs, International Management, https://doi.org/10.1007/978-3-662-65870-3_3