Chapter 6 Investing Abroad Directly Choose any Multinational Enterprise (other than Coca-Cola) that engages in FDI and complete the questions below for your company of choice. Provide a copy of the articles used to complete the questions. Below is an example of Coca-Cola: Coca-Cola Co. owns a secret formula for its sodas and supports Coca-Cola brands. Coca-Cola Co. produces drink syrups, which it sells to licensed bottlers around the world. The licensed bottlers mix the syrups with local water and sell the resulting soft drinks in their countries. Coca-Cola engages in Horizontal FDI in South Africa (in contrast with Apple, which has a process factory in California, a body factory in Taiwan, and an assembly factory in China to produce its MacBooks). Ownership: The secret recipe and brand recognition. Location: Shipping Coca-Cola is expensive — it’s mostly water. Instead, use domestic water. Internalization: Coca-Cola recipe is easily stolen, so ship the syrup to bottlers and keep recipe within the company. O, L, and I advantages are all strong in this case. Some of the positive benefits of Coca-Cola on the host country: (1) Brought jobs to the communities in South Africa Some negative benefits of Coca-Cola on the host country: (1) Childhood obesity Chapter 6 Investing Abroad Directly 1. Did the MNE engage in Horizontal FDI or Vertical FDI (upstream/downstream)? Draw their value chain to illustrate the type of FDI which they engaged in (see page 154 in your book). (1 paragraphs) 2. According to John Dunning’s framework, what are the ownership advantages that the MNE reaped? Give at least 3 examples directly from your Multinational Enterprise. (1 paragraph) 3. According to John Dunning’s framework, what are the locational advantages that the MNE reaped? Give at least 3 examples directly from your Multinational Enterprise. (1 paragraph) 4. According to John Dunning’s framework, what are the internationalization advantages that the MNE reaped? Give at least 3 examples directly from your Multinational Enterprise. (1 paragraph) 5. Provide at least two of the potential benefits and two negative affects that this MNE has had on the host country. (1 paragraph) Globalizing Business AN INTRODUCTION TO INTERNATIONAL BUSINESS What is International Business (IB)? • Who are the most important actors in IB? • Define MNEs • Examples Fundamental Question • We will focus on one main question to guide all of the learning in this course Liability of newness or outsidership • What are some of the disadvantages from doing business outside of your home country? • How have some firms overcome these disadvantages? Globalization • Define (Mauro Guillien) • Debate The shift in globalization • In the 1980's, globalization was mainly between developed countries, North America, Western Europe and Japan. What happened in the 1990’s? • Define Triad • Define BRIC • Define emerging economies The Pyramid Structure of the Global Economy • What has happened to the number of people in the base of the pyramid over the past several decades? Why? • Define base of the pyramid • Anti-globalization (3 ideas) Who are the biggest players in the global economy? Top Economies by GDP in 2013 Who are the biggest players in the global economy? Top Companies by Revenue Practical Implications • Debating the degree of globalization Globalization Continuum • Two Traps • Ethnocentric perspective • Not-invented-here syndrome Globalizing Business AN INTRODUCTION TO INTERNATIONAL BUSINESS What is International Business (IB)? • Who are the most important actors in IB? • Define MNEs • Examples Fundamental Question • We will focus on one main question to guide all of the learning in this course Liability of newness or outsidership • What are some of the disadvantages from doing business outside of your home country? • How have some firms overcome these disadvantages? Globalization • Define (Mauro Guillien) • Debate The shift in globalization • In the 1980's, globalization was mainly between developed countries, North America, Western Europe and Japan. What happened in the 1990’s? • Define Triad • Define BRIC • Define emerging economies The Pyramid Structure of the Global Economy • What has happened to the number of people in the base of the pyramid over the past several decades? Why? • Define base of the pyramid • Anti-globalization (3 ideas) Who are the biggest players in the global economy? Top Economies by GDP in 2013 Who are the biggest players in the global economy? Top Companies by Revenue Practical Implications • Debating the degree of globalization Globalization Continuum • Two Traps • Ethnocentric perspective • Not-invented-here syndrome Formal Institutions POLITICAL, ECONOMIC, AND LEGAL SYSTEMS Components and Supportive Pillars of Institutions Types Three pillars Formal Regulatory Coercive power of government (laws) Institutions Rules of the game Normative Informal Culture, Norms, Ethics Cognitive Taken for granted assumptions Key Role of Institutions • Strong institutions & opportunistic behavior • Uncertainty & Transaction costs Examples of Transaction Costs Easy exchange, without misunderstanding and conflict, reduces cost Political Systems • Democracy • Authoritarianism • Political Risk • Expropriation of assets Types of Regimes Economic Systems • Adam Smith – “Invisible Hand” • Market Economy • Command Economy • • High degree of government control High degree of social services • • Low degree of government control Low degree of social services Legal Systems • Common Law • Civil Law • Theocratic Law • Property rights • Intellectual Property rights Practical Implications Firm Resources CHAPTER 4 Fundamental Question • We will focus on one main question to guide all of the learning in this course Chapter 2 Chapter 4 Chapter 3 Types of Resources • Tangible vs Intangible Capabilities • Resources vs Capabilities • Example: Fast food hamburger • Evidence of Capabilities in Value Chain Where do the firms capabilities lie? Input (Raw Materials) Primary Components Intermediate Components • Cows • Wheat, Tomato, Lettuce • Slaughtered • Harvested • Bread is baked; Hamburger is half fried • Transported to restaurant • Order • Pay for meal • • Clean up after customers Complaints Assembly Examine what the firm develops particularly well Examine the Value Chain (outsourcing) Apple (innovation) vs Amazon (logistics and services) Sales After Sales Value Chain Capabilities • Examples of Capabilities VRIO • First Question: Does your resource add value? VRIO • Second Question: How rare are these resources? VRIO • Third Question: Is your resource easily imitable? • TACIT KNOWLEDGE • Speaking language like a native • Playing an instrument VRIO • Fourth Question: Do you have an organization with appropriate structures and capabilities to exploit and make use of all these resources? Another Way to Analyze Resources… • Benchmarking • To outsource or not to outsource • To offshore or not to offshore Implications for Practice • What does this all mean for you as a manager?
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