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Business and Marketing Strategies - Globalization,
Internationalization, and Multinational Enterprises
Index:
1
...


Internationalization Process
-

-

-

3
...
1 What are Institutions?
3
...
3 Political Risk

Multinational Enterprises (MNEs)
-

-

-

-

5
...
1 What is Internationalization?
2
...
3 Internationalization Methods
■
Exporting
■
Franchising and Licensing
■
Offshoring and Outsourcing
■
Foreign Direct Investment (FDI)
2
...
5 Theoretical Frameworks Supporting Internationalization
■
OLI Paradigm (Eclectic Theory)

Institutions
-

4
...
1 What is Globalization?
1
...
3 Historical Examples of Globalization
1
...
5 The Role of Globalization in Business Expansion
■
Opportunities
■
Challenges

4
...
2 Key Characteristics of MNEs
■
Ownership Structure
■
Competitive Strategy
■
Global Networks and Operations
■
Regulatory and Institutional Adaptation
4
...
4 Examples of MNEs
■
Emerging Market MNEs
■
Historical MNE Example
■
Modern MNEs
4
...
1 Ownership Advantages
5
...
3 Internalization Advantages
5
...
Globalization
1
...

Process by which economies, societies, and cultures become increasingly interconnected through
trade, communication, and cultural exchange
...

Essentially, globalization represents the shrinking of the world into a global village, where events in
one part of the world can influence those on the other side​
...


1
...

Economies become interconnected by reducing trade barriers, such as tariffs and quotas,
allowing goods, services, and capital to move freely across borders
...

-

Example of International supply chains:

An iPhone is designed in the U
...
, but its parts are manufactured across China, South Korea,
and Japan, with assembly done there before it is sold worldwide
...

Global media, art, food, and fashion flow freely across borders
...


-

Example: The global popularity of Western fast food chains

—> Like McDonald's or cultural phenomenas such as K-pop from South Korea, which have
become wildly successful worldwide
...

-

●

Example: Students from developing countries often pursue higher education in
countries like the U
...
, U
...
, or Australia, gaining global perspectives and skills
...

The internet, mobile technology, and digital platforms make it easier than ever for businesses
and individuals wanting to engage in global commerce or communication to take their
operations global, by reducing barriers to entry
...


1
...

Later, colonial empires like the British Empire expanded this and integrated the world by establishing
trade routes and solidifying economic dominance across entire continents​
...
4 - Types of Firms Involved in Globalization:
1
...
MNEs often dominate global markets due to their size, capital, and ability to
scale internationally
...

Characteristics of MNEs:
■
■
■

Centralized operations with decentralized subsidiaries in different countries
...

Heavy use of FDI to establish local subsidiaries, factories, and branches
worldwide
...
Small and Medium Enterprises (SMEs):
- Definition: Smaller companies that engage in international trade but typically do not have the
resources to set up extensive overseas operations like MNEs
...

- Example: A small textile manufacturer in Southeast Asia might export its products
globally by partnering with a larger distribution company or using an e-commerce
platform like Amazon
...

■ New technologies such as the internet and digital marketing allow SMEs to
reach global customers without the need for physical expansion
...


3
...
Born globals take advantage of modern technology, digital
platforms, and globalization trends to expand quickly into international markets
...
Both companies, although
relatively small when they began, leveraged the internet to reach global audiences
almost immediately​
...

■ They often focus on niche markets that have global demand
...


1
...
It offers:

●
●
●

Market Expansion: Access to new customers in different geographic regions, allowing for
business growth and diversification
...

Innovation and Competition: Exposure to international competition forces businesses to
innovate continuously, offering better products and services to consumers globally
...

Regulation: Different countries have varying legal and regulatory frameworks, creating
complexities in doing business across borders
...


SUMMARY GLOBALIZATION:
Globalization is a multifaceted process with significant economic, cultural, and technological impacts
...
At the same time, it presents challenges that require businesses to
adapt to new competitive environments and varying regulatory frameworks
...

Through the examples of MNEs, SMEs, and born globals, it's evident how different types of firms
leverage globalization differently, depending on their size, resources, and market goals
...


2
...
1 - What is Internationalization?
Internationalization refers to the process by which a company expands its business operations
beyond its domestic market to engage in cross-border activities
...

It is a strategic decision that firms make to grow, increase profitability, and tap into new opportunities
globally
...


2
...

1
...

For instance, firms in industries with saturated domestic markets may find internationalization
critical for business survival and growth
...
For example, Coca-Cola
operates in nearly every country around the world, which allows it to maintain high global
revenues
...
For example, a firm that only sells products in the U
...
is vulnerable to economic
downturns in that country
...

2
...

For example, Huawei expanded into Western markets not only to sell products but also to
gain knowledge of advanced telecommunications technologies
...
For example, Apple offshores the manufacturing of its iPhones to
countries like China to take advantage of lower production costs and skilled labor
...
European fashion brands, such as H&M, often manufacture their clothing in
Southeast Asia to reduce costs while still maintaining global quality standards​
...
3 - Internationalization Methods:
Firms use different methods of internationalization depending on their goals, resources, and the
competitive landscape
...

1
...

Direct Exporting: The firm sells directly to customers in foreign markets
...

Indirect Exporting: In this method, a company uses intermediaries like agents or distributors
to sell its products overseas
...

-

Example: Samsung started exporting its products to Europe and North America in
the 1970s as its first step towards internationalization​
...
Franchising and Licensing:

-

Definition: Franchising involves granting a foreign company the right to operate
using your business model and brand in exchange for royalties or fees
...


Franchising Example: McDonald’s has expanded globally through franchising, allowing
local entrepreneurs to operate under its brand name
...

Licensing Example: Disney licenses its characters and intellectual properties to foreign
companies to produce toys, apparel, and other products, allowing it to earn revenue without
direct involvement in manufacturing
...
Offshoring and Outsourcing:
Offshoring: Moving production or service processes to another country, usually to reduce
costs
...

Outsourcing: Contracting a third-party firm to carry out specific business functions in another
country
...

-

Example: Apple outsources its iPhone manufacturing to Foxconn in China, where
production costs are lower, allowing the company to maintain high profitability​
...
Foreign Direct Investment (FDI):
- Definition: FDI occurs when a company invests directly in facilities or businesses in a
foreign country, either through acquisitions, joint ventures, or setting up entirely new
subsidiaries (known as "greenfield investment")
...
Samsung used joint ventures to manufacture products abroad starting in
the 1990s​
...

Greenfield Investment: This involves setting up entirely new operations, such as factories or
offices, in a foreign country from scratch
...

- Example: Huawei has made significant FDI by establishing technology hubs in Egypt
(OpenLab platform) and Thailand (5G infrastructure)​
...
3
...
In Egypt, Huawei set up an OpenLab,
which serves as a collaborative platform for local businesses and industries to benefit from
Huawei’s advanced technologies
...
These moves highlight Huawei’s strategic use

of FDI to not only gain market access but also to influence technological infrastructure in key
regions​
...
4 - Risks and Challenges of Internationalization:
1
...
A lack of cultural awareness can result in
miscommunication or business failure
...


2
...

- Example: Uzbekistan recently reformed its political environment, attracting new FDI,
but businesses investing in politically unstable countries face high risks​
...
Currency and Exchange Rate Risks: Companies that operate in multiple countries are
exposed to fluctuations in exchange rates, which can impact profitability
...


2
...
The theory is based on three main
advantages:
1
...
g
...

2
...
g
...

3
...
g
...


SUMMARY INTERNATIONALIZATION:
Internationalization is a complex, multi-faceted process that offers significant opportunities for growth
and expansion but also comes with inherent risks
...
Successful internationalization requires a deep understanding of cultural, political, and
economic conditions in the target countries
...
Institutions
3
...
They are the
“rules of the game” that define how entities (people, businesses, governments) interact within a given
country or across borders​
...
These institutions ensure the smooth
functioning of the economy, political system, and legal framework
...
These are embedded in the society's
culture and can vary significantly from country to country, affecting business practices and
social behavior in ways that laws cannot predict or control
...
2 - Types of Institutions
3
...
1 - Formal Institutions
These are the laws, rules, and regulations that govern the political, legal, and economic aspects of a
country
...
They can be categorized into several key areas:
a) Political Systems
Political systems refer to how power is organized and exercised in a country
...
The stability
and transparency of a political system are major factors for businesses, especially foreign investors,
as they determine the level of political risk involved
...
For example, in countries like the UK or the United States, businesses often face
less political interference because the political system is designed to balance power between
the state and the private sector
...

Autocratic/Totalitarian Systems: In contrast, autocratic or totalitarian regimes concentrate
power in the hands of a few, often leading to unpredictable changes in policy or regulations
...


Example: Uzbekistan is an interesting case
...
These changes significantly improved the investment climate, attracting foreign
businesses and increasing the country’s Gross Domestic Product (GDP)
...

b)

Legal Systems

Legal institutions refer to the courts, regulations, and enforcement mechanisms that uphold the rule of
law in a country
...

●

●

Common Law: Found in countries like the UK, the United States, and Australia, common law
systems are based on judicial precedents
...

Civil Law: In contrast, civil law systems (common in Europe, Latin America, and parts of
Asia) are based on written statutes and codes
...

Example: In China, the legal framework for foreign businesses is distinct from Russia’s
...

For example, a Russian company setting up an office in China may find that their employment
contracts, which are valid under Russian law, need to be adapted to Chinese regulations
...

c) Economic Policies
These include fiscal policies (taxation, government spending), monetary policies (interest rates,
inflation control), trade regulations, and industrial policies that shape the economic environment within
which businesses operate
...
Economic policies that promote open
trade (such as reducing tariffs) or provide financial stability through sound monetary policies
are attractive to multinational enterprises (MNEs) looking for investment opportunities
...


3
...
2 - Informal Institutions
Informal institutions are the unwritten societal norms and cultural values that influence behavior and
decision-making
...

a) Cultural Norms and Values
These are the shared beliefs, values, and practices of a society that guide everyday interactions,
including business dealings
...

Example: In China, cultural norms around hierarchy and face-saving (the concept of maintaining
dignity in social situations) deeply influence business negotiations
...
In contrast, American
businesses, which operate in a more individualistic and low-context culture, may prioritize getting
straight to business
...

b) Social Ethics
Ethical standards and the level of corruption tolerated within a society are also crucial informal
institutions
...

Example: When foreign businesses set up operations in countries like Russia, they may encounter a
high tolerance for informal business dealings that would be considered unethical or illegal in Western
countries
...


c) Business Practices
These are industry-specific norms and practices that might not be codified but are accepted as
standard in a particular country or industry
...

Example: Walmart failed in Germany in part due to its lack of understanding of informal business
practices and cultural expectations around customer service and labor management
...


3
...

These risks can significantly affect foreign investments and operations, especially in countries with
less stable political systems
...

Governmental Instability: Coups, civil unrest, or transitions of power can disrupt business
operations or lead to nationalization (government takeover of foreign-owned assets)
...

Corruption: High levels of corruption increase costs and risks as businesses may need to
navigate bribery and informal networks to get things done
...
This resulted in massive financial losses for those companies
and deterred further foreign investments​
...
Whether adapting to legal frameworks, navigating cultural nuances, or
managing political risks, businesses must consider the institutional environment to succeed in foreign
markets
...
Multinational Enterprises (MNEs)
4
...
Unlike domestic firms that only function within their
home country, MNEs engage in cross-border economic activities such as foreign direct investment
(FDI), trade, and joint ventures
...

●

Example: Major MNEs like Unilever, Apple, and Toyota have offices, factories, and sales
networks in multiple countries
...
g
...


4
...
Ownership Structure
MNEs typically have complex ownership structures
...
Ownership can either be full or shared
...
For example, Ford established greenfield
manufacturing plants in Mexico to take advantage of cheaper labor
...
This is often done to mitigate risks and
navigate foreign regulatory environments
...


2
...
For
example, Apple leverages its ownership of design, software, and brand value to
outperform competitors in international markets
...
For example, Nike outsources much of its manufacturing to Southeast Asia,
where labor costs are lower, and supply chains are well-established
...
For example, Toyota
maintains tight control over its supply chain to ensure the quality of components and
assembly, which helps avoid issues with third-party contractors​
...
Global Networks and Operations
MNEs often establish a decentralized organizational structure with regional headquarters or
offices in different parts of the world
...

For instance, Coca-Cola operates regional production plants across the globe, adjusting its
marketing and flavor profiles to local tastes but maintaining a global brand​
...
Regulatory and Institutional Adaptation
MNEs must also navigate diverse legal and regulatory environments, adapting their business
models to the specific political, economic, and social contexts of the countries in which they

operate
...


4
...
Positive Impacts:
- Economic Growth: MNEs contribute to the economic development of host countries
by creating jobs, stimulating demand for local goods and services, and bringing in
capital investment
...

- Technology Transfer: MNEs often bring advanced technology, management
practices, and training to the host country, which can improve local productivity and
skills
...

- Job Creation: MNEs create jobs directly through their local operations and indirectly
through supply chain linkages
...


2
...

■ Example: Nike has been criticized for using sweatshops in Southeast Asia
where workers reportedly faced unsafe conditions and low wages​
...

■ Example: Oil extraction by Shell in Nigeria has caused extensive
environmental damage, including oil spills and habitat destruction, with
long-term consequences for local communities​
...
Additionally, MNEs can sometimes exert
undue influence over local governments, undermining sovereignty and governance
...


4
...
Emerging Market MNEs:

-

-

Gazprom (Russia): Gazprom is one of the world’s largest energy companies,
focusing primarily on natural gas exploration and production
...

Huawei (China): Huawei is a global telecommunications giant with operations in over
170 countries
...
Huawei's rapid international expansion has
allowed it to compete with Western tech firms like Apple and Ericsson, highlighting
the rise of emerging market MNEs​
...
Historical MNE Example:
- East India Company: Often cited as one of the earliest examples of a multinational
enterprise, the British East India Company dominated global trade in the 17th and
18th centuries
...


3
...
It
also engages in foreign direct investments by acquiring local firms in markets like
India and Australia​
...
5 - Challenges Faced by MNEs
1
...

- Example: Venezuela’s nationalization of foreign oil companies in the 2000s
significantly affected firms like ExxonMobil, which lost control over local assets
...
Cultural and Institutional Differences: MNEs must navigate cultural differences and varying
institutional frameworks
...

- Example: Walmart struggled to adapt to the German market due to differences in
shopping culture and labor laws, ultimately withdrawing from the market​
...
However, their operations must be carefully managed to balance the benefits of
globalization with the potential risks and challenges they pose to host countries
...
Key Theories: OLI Paradigm (Eclectic Theory)
The OLI Paradigm, also known as the Eclectic Theory of International Production, was developed
by economist John Dunning
...
The theory suggests that firms engage in Foreign Direct
Investment (FDI) when three conditions are met, represented by the acronym OLI: Ownership

advantages, Location advantages, and Internalization advantages
...


5
...
These are typically firm-specific advantages that give a company a
competitive edge over local firms in foreign countries
...
Technological Innovations: Firms like Google or Samsung possess cutting-edge
technology that competitors in some foreign markets do not
...

2
...
The value of a
globally recognized brand means consumers already trust the product, giving these
firms a distinct advantage in international markets
...
Patents and Trademarks: Firms like Pfizer in the pharmaceutical industry often rely
on patents for unique drugs
...

4
...

For instance, Toyota has superior expertise in lean manufacturing, which allows it to
operate efficiently in foreign markets
...
e
...
A foreign firm needs a compelling reason—whether it be a superior product,
technology, or brand—to succeed in markets where local firms have the advantage of
understanding the market and customer preferences better
...
2 - Location Advantages (L)
Location advantages refer to the specific benefits a firm can gain by locating its operations in a
particular foreign country
...

-

Examples of Location Advantages:
1
...
Extracting
resources locally reduces costs for companies
...
Labor Costs: Many multinational companies (e
...
, H&M or Nike) outsource
manufacturing to countries in Southeast Asia like Vietnam or Bangladesh, where
labor is cheaper than in developed countries
...

3
...
For example, Tesla expanded into China because it’s the world’s
largest electric vehicle market, offering Tesla significant sales opportunities
...
Government Incentives: Governments may offer tax breaks, subsidies, or relaxed
regulations to attract foreign businesses
...


●

Explanation: Location advantages influence where a firm should place its production
facilities, headquarters, or subsidiaries
...
This is why car manufacturers like BMW and Toyota
establish factories in places like Mexico or Thailand, where they can produce cars at a lower
cost while still having access to international markets
...
3 - Internalization Advantages (I)
Internalization advantages refer to a firm's ability to control the value chain internally, rather than
relying on third parties through licensing, franchising, or joint ventures
...

-

●

Examples of Internalization Advantages:
1
...
By manufacturing its products in-house (or tightly controlling its suppliers), it
ensures that the quality of its iPhones and MacBooks is consistent worldwide
...
Intellectual Property Protection: Firms with significant intellectual property, like
Microsoft or Sony, prefer to retain control of their operations abroad to avoid
potential theft or misuse of proprietary technologies and processes
...
Supply Chain Efficiency: Amazon has built an integrated logistics and distribution
network that allows it to manage inventory and delivery efficiently
...

Explanation: Internalization advantages help companies mitigate risks such as contractual
uncertainties, quality issues, and intellectual property theft
...
Internalization also allows firms to keep critical capabilities or
assets—such as technology, know-how, or even corporate culture—within the firm, thereby
safeguarding its competitive advantage
...
4 - Bringing the OLI Paradigm Together
The OLI Paradigm proposes that for a firm to engage in FDI, it must have all three types of
advantages: Ownership, Location, and Internalization
...
Ownership Advantage: The firm must have unique resources or capabilities (e
...
, superior
technology, patents, or a brand) that allow it to compete in foreign markets
...
Location Advantage: The host country must offer something that the home country does not,
whether it be lower production costs, access to resources, or access to a new customer base
...
Internalization Advantage: The firm must benefit more from keeping control of its operations
than from using market-based mechanisms like contracts, franchising, or licensing
...
4
...
Ownership Advantage: Toyota has strong technological capabilities, especially in
hybrid technology, that give it a competitive edge in international markets
...
Location Advantage: Toyota has established manufacturing plants in countries like
the United States, Thailand, and Mexico to take advantage of local resources, lower
labor costs, and proximity to key markets
...
Internalization Advantage: Toyota maintains control over its production processes to
ensure quality and consistency across its global manufacturing facilities, rather than
outsourcing manufacturing to third parties
...
4
...
Ownership Advantage: McDonald's possesses strong brand recognition and
proprietary business models, which allow it to attract customers worldwide
...
Location Advantage: It expands into countries with growing urban populations and
emerging middle classes, like India and China, where there is demand for fast food
...
Internalization Advantage: McDonald's uses franchising in some regions but
maintains control over key aspects like supply chains, food safety, and quality
standards to protect its brand
...
It also guides firms in deciding how to enter foreign markets (e
...
, via
joint ventures, acquisitions, or greenfield investments) based on their resources, the attractiveness of
the location, and whether it makes more sense to internalize operations
...
This
paradigm is particularly useful for firms moving beyond simple exports or licensing and looking to
establish a deeper presence in foreign markets

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