International Strategy Course code 6314M0173 (Semester 1) Instructor Roger Smeets Office location: M2.

29 Office hours: By appointment Email address: r.smeets@uva.nl Course load 6 ECTS Course subject There are over 77,000 Multinational Enterprises (MNEs) worldwide, and these MNEs together control 770,000 foreign subsidiaries, employ 62 million people, and generate $4.5 trillion in value added each year. Multinationals are at the heart of the global economy, but what is their function? At their core, MNEs are market makers. By internalizing markets through foreign direct investment (FDI), they allow cross-border markets to arise within the firm in cases where traditional arms length markets would otherwise fail. MNEs serve to transfer knowledge, resources, goods, people and capital across borders, redistributing these assets in ways that traditional markets might not. But are MNEs always successful? Far from it. Foreign countries can tempt companies with potential sources of new growth, access to vital resources, lower labor costs, and new sources of innovation. Multinationals like Toyota, IBM and Nestl have demonstrated world-class success in their international operations. But more often than not, foreign ventures flop like Wal Mart in Germany, Chryslers merger with Daimler, or GEs alliance with Rolls Royce. So what distinguishes successful MNEs from failures? Some firms are better at negotiating the complexities of the international landscape than others, adapting to cross-country differences in politics and culture where necessary, even taking advantage of such differences where possible. Others underestimate these obstacles or overestimate their ability to negotiate them effectively. In this class, well look more closely at the challenges of being a MNE to identify strategies and tools that managers can and do use to help their companies be successful in foreign markets against the odds. Topics The course is designed specifically to be academically challenging as well as practically relevant, and special attention is paid to integrating academic literature into discussions of real-world issues. The course is mainly micro in nature, focusing on strategic decisions related to questions regarding why, where and how to invest, organizational structure, learning and performance.

Goals At the end of this course, students will be able to: Articulate various theories regarding why MNEs exist, and explain their similarities and differences Explain the notion of international strategy, what it entails, and which theoretical frameworks can be used to analyze it Identify different reasons why firms (MNEs) set up foreign affiliates Identify which factors determine where firms (MNEs) set up foreign affiliates Identify how firms (MNEs) set up foreign affiliates and what factors are important in this decision Explain the role of subsidiaries in relation to MNE headquarters (MNE) regarding developing or sustaining competitive advantage Relate all of the above to its implications for firm (MNE) performance Costs The weekly readings will be posted to the blackboard site for this course. The business cases, on the other hand, are subject to copyright costs. They can be purchased online at www.ecch.com and generally cost $US 3,75 (+/- 2,72) per case Teaching methods and class setup The course will last 6 weeks (week 44-49), with a lecture-free week in the 7th week (week 50) for exam preparation, and a sit-down exam in the 8th week (week 51). Class is three hours per week, consisting of a balance of lecture, team presentations, open discussion and case analysis. Attendance is mandatory, and you are required to attend the session for which you are registered. In the first meeting we will (re)consider some basic theories of the MNE, as well as theories regarding international strategy. The main part of the first meeting will be a combination of a lecture and in-class work. In the five subsequent meetings, students will work in groups of ca. 2-3 people to make presentations to the class. In particular, each meeting we will have two in-class presentations. The first will introduce and discuss the readings, and the second will present an analysis of that weeks business case. You may form your own teams, but I will assign the team numbers. This means that a typical day in IS class will look like this: Recap previous class Introduction to the weeks topic Group presentation of literature & discussion Q&A, discussion questions, clarifications

BREAK (ca 15 mins) Case presentation Discussion & analysis Summary & key takeaways 2

Preview next class

Grading Your grade is based on a number of components: 1. 40% team presentation & paper 2. 20% team case briefs & questions 3. 40% final exam 1. Team presentations The presentation of the readings is meant to give a brief overview of the assigned articles, highlighting and discussing some of their similarities and differences and what the key takeaways for MNE managers are. Some critical reflection is also required: what is your opinion of the theoretical foundations of the (academic) readings? How do they compare to each other? Is this how companies operate/managers think? Each case that we deal with is intended to get you thinking about the real-life challenges that managers face, and to link them to the theoretical and academic perspectives from the readings. The presentation of the cases should therefore be a clear example of theory meets practice. Case discussion questions will be provided in advance to guide the discussion and presentation, but presenting teams are expected to extend and deepen their exposition of the case. Each presenting group is expected to hand in a written paper (+/- 15-20 pages, Times New Roman 12 pt, including title page, table of contents, appendix and references) one week after their presentation, before the start of the next meeting: Those presenting the readings are expected to single out one of the meetings papers, provide a synopsis of its content and derive a (new) question or puzzle that arises from it. They are then expected to find additional literature to address this question or puzzle, provide a discussion of it, and arrive at a (preliminary) conclusion or answer. Those presenting the cases are expected to write an extensive case brief along the lines of their presentation. Again, this means that there should be a clear link between the theoretical and academic perspectives of the papers and the practical issues presented in the case. As in the presentation, the discussion questions provide a guideline, but the paper should extend and deepen the exposition of the case. If and how you choose to divide the work among the team members is up to you, but note that both for the presentation as well as the paper you will be graded as a team, i.e. I will not assign individual grades to individual team members. After each presentation I will ask some of your fellow students for 3

feedback and a grade suggestion. The presentation and the paper each have equal weight (i.e. 50%) in the final grade for this component. Finally, presenting teams have the option of consulting with me for 30 minutes in the week before their presentation in order to ask clarifying questions regarding the required readings or the case study. These consulting meetings should be made by appointment. Note that this is optional and not required.

2. Individual case briefs Those teams that are not presenting in a particular meeting are expected to hand in before each meeting: A two-page case brief (i.e. a synopsis) of that weeks case, where the case discussion questions can be used as a guideline Two questions on the background readings (where each question relates to a different article) and two questions on the business case. These questions should go beyond mere clarification and demonstrate a thorough reading of the materials Since there are 5 lectures with team presentations, there are 4 of them remaining for which each team is expected to submit a case brief and questions. I will assign a P (pass = 1) or F (fail = 0) grade to both the case brief as well as the four questions, leading to a maximum of 2 points and a minimum of 0 points per case brief & questions, and a maximum of 8 points and a minimum of 0 points in total. Also make sure to bring your own copies of the case briefs and questions to each meeting as they will serve as the basis for the in-class discussions after each presentation. 3. Final Exam The exam will be short-essay answer with questions applied to a case. The setup of the exam will be such that you will be tested both on your understanding of the (theoretical) concepts discussed in the required readings, as well as your ability to apply these concepts to the case-study in an insightful way. In that sense all of our case-based discussions in class will be practice for what you can expect on the exam. Note that you must score 50% or higher on the final exam in order to receive a passing grade. Total grade breakdown Possible points Team presentation (readings or case) 10 Team paper (readings or case) 10 Weight 20% 20% 4

Individual case briefs & questions Final exam Total

8 10

20% 40% 100%

Grading criteria for presentations & papers Criteria for readings presentations - Able to identify the main features of the readings using own words - Derives managerial implications of the readings - Compares and contrasts theoretical assumptions and/or empirical results - Rises above the material to make critical assessment of theoretical assumptions and implications - Clear and effective presentation - Logical structure - Effective use of powerpoint or a Criteria for readings paper Clear introduction of that weeks topic Concise synopsis of the selected paper Logical derivation of central question or puzzle Link between question and the additional literature, as well as a clear discussion thereof Logical conclusion/ answer Well structured (intro, synopsis + question, additional literature, conclusion) Criteria for case presentations Explicates the strategic issue(s) in question Identifies factors from readings that bear on the case and confronts them Links those factors to the case in question, using clear examples Clear, effective presentation Logical structure Able to involve other participants Able to elicit new ideas and let go of own ideas Able to use readings to support arguments Criteria for case paper Explicates the strategic issue(s) in question Identifies factors from readings that bear on the case and confronts them Links those factors to the case in question, using clear examples Well structured Integrates ideas of other participants from in-class discussion Uses readings effectively Reflects on the link theory practice

related presentation program

SESSION OVERVIEW Meeting 1 (Week 44): Why do MNEs exist? During this first meeting, we will (re)consider some key theories of the MNE, as well as the international strategic decisions that they are faced with. Questions that will be addressed are: Why do MNEs exist? What are necessary and sufficient conditions for MNEs to survive abroad? How can MNEs affect their survival and international performance themselves? What factors are important in this regard? The first part of the meeting will briefly introduce the course, discuss the course outline, my and your expectations etc. Given the limited time we have in this course (only six weeks!) we will then quickly turn to a discussion of theories on the existence of the MNE. During the second part of the meeting, we will move on to theories of (international) strategy. Finally, you will objectively look at MNEs from different countries and sectors yourself, to identify degrees and patterns of internationalization. How global are MNEs really? Make sure to bring your laptops so you can find out. Also, bring your assignment 3 from the Theories in International Management course (if you took this course) so we can compare the different MNEs that you have analyzed. Required readings: Buckley, P., & Casson, M.C. (2009). The internalization theory of the multinational enterprise: A review of the progress of a research agenda after 30 years. Journal of International Business Studies 40(12): 15631580. Rugman, A.M., Verbeke, A., & Nguyen, Q.T.K. (2011). Fifty years of International Business Theory and Beyond. Management International Review forthcoming pp. 1-25 only Tallman, S.B. (1991). Strategic management models and resource-based strategies among MNEs in a host market. Strategic Management Journal 12(Special issue): 69-82. Peng, M.W., Wang, W.Y.L. & Jiang, Y. (2008). An institution-based view of international business strategy. Journal of International Business Studies 39(5): 920-936 Meeting 2 (Week 45): Why do MNEs invest abroad? An important part of determining an appropriate international strategy is knowing why a firm wants to venture abroad. Does it want to tap into large and rapidly growing foreign markets, is it looking for access to (physical) resources, or does foreign production present opportunities to reduce factor costs? Any of these different investment motives presumably also entails a different strategic approach. In this meeting we will review various motives that MNEs can have for setting up foreign affiliates, and the different factors that affect these motives. Required readings: 7

Dunning, J.H. & Lundan, S.M. (2008). Multinational Enterprises and the Global Economy (Second Edition), Edward Elgar, Cheltenham UK. Chapter 3: The motives for foreign production, pp. 63-78. Hanson, G.H., Mataloni, R.J.& Slaugther, M.J. (2001). Expansion strategies of U.S. multinational firms. NBER Working Paper 8433 Chung, W. & Yeaple, S. (2008). International knowledge sourcing: evidence from U.S. firms expanding abroad. Strategic Management Journal 29: 12071224.

CASE: China goes global: The new taste of Chinese companies for foreign assets [ACRC, 206-011-1] Meeting 3 (Week 46) Where do MNEs invest? Once a MNE has decided (why) it wants to set up a foreign affiliate, another issue that should be addressed is where to go to. What host-country factors should be taken into account when deciding on the appropriate (direct) investment location? Do these factors depend on the investment motive, and if so, how? Can and do governments design policies to attract MNEs into their territories? Required readings: McCann, P. & Mudambi, R. (2004). The location behavior of the multinational enterprise: Some analytical issues. Growth and Change 35(4): 491-524. Benito, G.R.G. & Gripsrud, G. (1992). The expansion of foreign direct investments: discrete rational location choices or a cultural learning process? Journal of International Business Studies 23: 461-476. Mariotti, S., Piscitello, L. & Elia, S. (2010). Spatial agglomeration of multinational enterprises: the role of information externalities and knowledge spillovers. Journal of Economic Geography 10: 591-538. CASE: Natuzzi group: Global challenges in the furniture industry at the threshold of the new millennium [SDA Bocconi, 305-322-8] Meeting 4 (Week 47): How do MNEs invest abroad? Given that an MNE has decided (why) it wants to open a foreign subsidiary and where to do this, it still has to decide on how it wants to enter the host-country. Various decisions have to be made in this regard. First, how much equity or control does it want to retain over the foreign operations? Depending on the answer to this question, it can opt for an International Joint Venture (IJV) or a Wholly Owned Subsidiary (WOS). Second, does it want to start from scratch or take over already existing operations? This will result in either a Greenfield or an 8

Acquisition entry mode. This week we will study the factors affecting these decisions, both at the firm-level as well as the (host-)country level. Required readings: Hill, C., Hwang, P., & Kim, W.C. (1990). An Eclectic Theory of the Choice of International Entry Mode. Strategic Management Journal 11(2): 117-128. Kogut, B. (1991). Joint ventures and the option to expand and acquire. Management Science 37(1): 19-33. Slangen, A.H.L. & Hennart, J.-F. (2007). Greenfield or Acquisition Entry: A Review of the Empirical Foreign Establishment Mode Literature. Journal of International Management, 13(4): 403-429. CASE Degussa Stabilizers: Accessing the Chinese Market [CEIBS, 306-614-1] Meeting 5 (Week 48) What is the role of foreign subsidiaries? Once a MNE has made several of these direct investment decisions and has a multitude of foreign affiliates in place, a question that arises is how this network of business units should/could be managed. Over time, the business and management literature has evolved from thinking of the MNE as a somewhat hierarchically structured group of business units, towards a view of the MNE as a network of business units with an explicit and pro-active role of foreign subsidiaries. This week we will study the (increased) importance of subsidiary initiative and autonomy, and consider its implications from firm-level (MNE) performance and HQ-subsidiary relationships. Read in advance: Birkinshaw, J., N. Hood & S. Jonsson (1998). Building Firm-Specific Advantages in Multinational Corporations: The Role of Subsidiary Intitiative. Strategic Management Journal 19, 221-241. Monteiro, L.F., Advidsson, N. & Birkinsahw, J. (2008). Knowledge flows within multinational corporations: Explaining subsidiary isolation and its performance implications. Organization Science 19(1): 90-107. Mudambi, R. & Navarra, P. (2004). Is knowledge power? Knowledge flows, subsidiary power and rent-seeking within MNCs. Journal of International Business Studies 35: 385-406. CASE Kentucky Fried Chicken (Japan) Limited [HBS 9-387-043]

Meeting 6 (Week 49) Multinationality and performance The ultimate goal of (any) international(ization) strategy is to increase firm (MNE) performance, possibly along several dimensions. Therefore, having reviewed various aspects of international strategy in the previous weeks, in this final lecture we will directly consider the link between multinationality (or 9

internationalization) and firm (MNE) performance. Is there a (straightforward) positive relationship between increased multinationality and performance, or are matters more complicated? Is the link between multinationality and performance possibly contingent on other factors? More fundamentally, should we even expect such a link to exist from a theoretical point of view? Read in advance: Lu, J., & Beamish, P. (2004) International Diversification and Firm Performance: The S-Curve Hypothesis. Academy of Management Journal 47(4): 598-609. Vermeulen, F. & Barkema, H. (2002). Pace, rhytm, and scope: Process dependence in building a profitable multinational corporation. Strategic Management Journal 23: 637-653. Hennart, J-F. (2007) The Theoretical Rationale for a MultinationalityPerformance Relationship. Management International Review 47(3): 423452. CASE Resuming internationalization at Starbucks [9B10M073]

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