Sample Exam Question - 1
 All of the following statements are true about
developing countries EXCEPT
A. They provide sources of cheaper labor in the
form of lower wage levels
B. Most have an abundance of increasingly
productive workers
C. They have less economic risks than developed
economies
D. All of the above are true
Sample Exam Question - 1
 All of the following statements are true about
developing countries EXCEPT
A. They provide sources of cheaper labor in the
form of lower wage levels
B. Most have an abundance of increasingly
productive workers
C. They have less economic risks than developed
economies
D. All of the above are true
Sample Question - 2

Seniority tends to dominate evaluation and
promotion in:
A. Short-term oriented cultures
B. Cultures high on uncertainty avoidance
and low on individualism
C. Ethnocentric cultures
D. Being rather than doing cultures
Sample Question - 2

Seniority tends to dominate evaluation and
promotion in:
A. Short-term oriented cultures
B. Cultures high on uncertainty avoidance
and low on individualism
C. Ethnocentric cultures
D. Being rather than doing cultures
Sample Exam Question - 3
 What is the difference between a high and a
low context language? Discuss some of the
potential problems a person with a low
context language may face when
negotiating with high context language
people.
Class 5
Multinational Corporation:
Strategies
Strategic Alliances
Today’s Agenda:
 Video “Multinational Corporations”







Impact of MNC on the source and host countries
Local-global dilemma
Jollibee case presentation and discussion
International alliances
Motivation to form alliances
Trust issue in international alliances
Transfer of knowledge in alliances
What is a MNC?
 Any company that engages in business
functions beyond its domestic borders
including selling abroad (textbook).
 A company that operates production
facilities in a number of different countries
(video “MNCs”)
 Not every MNC is a global corporation yet
(K.Ohmae)
Impact of MNC on the Source Country
(video “Multinational Corporations)




Higher earnings for the investing company
Export of jobs overseas
Export of technology
Loss of tax revenues
Impact of MNC on the Host Country
(video “Multinational Corporations)




Job creation
Technology inflow
Loss of control
Fear of exploitation
Local-Global Dilemma for MNCs
regional
local
multidomestic
transnational
multinational
international
global
global
 Economic imperative: to expand beyond the home
country with global products
 Consumer needs: local responsiveness
 With what products?
 Into which countries?
 What modes of entry to use?
Choice of Global Products
Required degree of
local adaptation
(Gupta & Govindarajan, Business Horizons, 2000)
high
Least
attractive
Moderately
attractive
low
Moderately
attractive
Most
attractive
low
high
Expected payoffs from globalization
(refer to text, globalization drivers, p.155-156)
Choice of Strategic Markets
Strategic importance of
market (market potential +
learning potential)
(Gupta & Govindarajan, Business Horizons, 2000)
high
Phased-in
entry (create a
beachhead
first)
Rapid
entry
low
Ignore
for now
On reserve
low
high
Firm’s ability to exploit the market
Company
A
R&D
Company
B
R&D
Input
Logistics
R&D
Input
Logistics
Supply/
Production
International
Strategic
Alliances
Operations
Operations
Operations
Production/
Marketing
Marketing
and Sales
Marketing
Marketing
and Sales
Output
Logistics
Delivery
Output
Logistics
Service
Service
Forms of Collaborative Relationship
Informal alliances
Joint product development alliances
ISAs w/o equity investment
Franchising
Investment alliances
Joint ventures
Mergers &
acquisitions
Co-marketing
alliances
Joint production alliances
Subcontracting
Licensing
Joint equity swaps
ISAs with equity investment
Direct foreign investment
Forms of Collaborative Relationship
Informal alliances
Joint product development alliances
ISAs w/o equity investment
Franchising
Investment alliances
Joint ventures
Mergers &
acquisitions
Co-marketing
alliances
Joint production alliances
Subcontracting
Licensing
Joint equity swaps
ISAs with equity investment
Direct foreign investment
International Strategic Alliance
Cooperative, non-equity collaboration
between partners or competitors across
borders that entails pooling of skills and
resources by the alliance partners to achieve
the strategic objectives of each cooperating
firm
International Strategic Alliance
Firm A
AB
Firm B
International Joint Venture
Firm A
Firm B
Types of Alliances: Summary
Alliance
Type
Informal
ICA
Degree of
Involvement
Ease of
Dissolution
Visibility to
Competitors
Contract Legal
Entity
Usually
limited in
scope
Often unknown No
to competitors
None
Formal lCA
Deeper
involvement
Often visible
Yes
to competitors
None
IJV
Deep
involvement
Easy, at the
convenience
of either
side
More
difficult to
dissolve prior
to end of
contract
Most
difficult to
dissolve
High visibility
Yes,
Yes
What motivates a firm to form
cooperative relationships?
 To extend the existing resources of the firm
 To provide customers with “total service
offerings”
 To circumvent barriers of new int’l markets
 To reduce economic and political risks
 To seek an alternative to direct investments
 To acquire new skills
What encourages a firm to
form an alliance? (cont’d)
Good prior exporting experience
(Dong-Jin Lee’s model, 1998)
Exporting
performance
Decision making
uncertainty
Cultural
distance
Economic
ethnocentrism
Possibility
of opportunism
Relational
exchange
Duration of
relationship
Intention
to form
strategic
alliance
What encourages a firm to
form an alliance? (cont’d)
Bandwagon pressure (institutional approach)
(Pangarkar & Klein’s model, 1998)
Peer firms
undertake
alliances
Bandwagon
pressure
Focal firm
undertakes
alliances
Why Do Canadian Firms Opt for
Cooperative Ventures?
 1 in 9 Cnd firms participate in cooperative ventures
 Main reasons: gaining access to new markets, access
to new technologies, resource pooling, risk and cost
sharing, scale or scope economies, building worldclass capabilities
 Most common forms - IJV, research consortia, comarketing alliances
Reasons for Failures
 Failure rate is 50-70%
 Selection of a wrong partner (lack of trust, misfit in
terms of governance, decision making, culture,
conflict mgmt)
 Failure to learn the new market (its needs,
opportunities, risks, competition)
 Miscalculated firm’s own strengths and weaknesses
in relation to the new markets
 Wrong assessment of costs of market entry and
operations
Maintenance of partnerships:
trust and performance
(Aulakh et al. model,1996)
Relational norms:
•continuity expectations
•flexibility
•info exchange
Trust
Monitoring mechanisms:
•output control
•process control
•social control
Partnership
performance
Interfirm trust in cross-national setting
( a study of Dyer, 2000)
US automakers
US suppliers
Japanese automakers in US
Does not depend on - the length of the relationships
- embedded ties and community support
Depends on - expectations of the continuity of relationships
- offering assistance
- fair, predictable, stable processes and routines
Knowledge transfer across alliance
partners
 Willingness to learn the core competencies of the partner
 Partner protectiveness - a barrier to knowledge transfer
 Marketing know-how (procedural knowledge) - the most
critical knowledge
 Explicit, simple and independent knowledge (e.g.,
“stock-list” based distribution system)
 Social, complex, systemic, tacit knowledge (e.g.,
relationships with suppliers, government and employees)
- source of ambiguity and barrier to imitation
Transferring knowledge between
individualist and collectivist cultures
 Individualists:


preference for linear, credible, explicitly logical
knowledge
scientific, systematic, abstractive, cause-effect
thinking
 Collectivists:


preference for tacit, contextual, comprehensive
knowledge coming from authorities
associative thinking
Managerial implications
- Foster
relational
exchanges
and
trust:
communication, liason roles, personal visits, info
sharing, language and cultural sensitivity training,
trade shows, staff exchanges
- Rely more on social interactions rather than formal
control mechanisms to develop mutual trust
- Codify the corporate marketing knowledge (market
knowledge, sales knowledge, customer knowledge)
- Invest in human resource development: expatriation
of valued specialists, personnel exchange programs,
etc.
Bottom-line
 MNCs leave different impacts on the source and the
host countries
 All firms that go international face the local-global
dilemma (which products, markets and entry
modes?)
 Alliance - an integral part of multinational strategy
and structure
 Alliance is a give-and-take relationship in any place
of the value chain
Bottom-line (cont’d)
 There is a high rate of failure across alliances
 Trust and social control - mandatory
precondition for partnership performance, more
important than formal control mechanisms
 Knowledge transfer between individualist and
collectivist cultures may encounter obstacles