Inward internationalization - CBS

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Nov 8, 2013 (4 years and 11 months ago)

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Welcome to inaugural presentation

May 5, 2004

IT and firms’
internationalization


Bent Petersen

Department of International Economics
and Management

2

Initial words of wisdom:


“A pessimist sees the difficulty in
every opportunity; an optimist
sees the opportunity in every
difficulty.”


-

Sir Winston Churchill

3

Agenda


A few definitions


Internationalization driven by
sales

motives


Internationalization driven by
sourcing

motives …

…the
brave new world of
globalization?


4

Definitions

What is meant by firms’
internationalization?


“The process of increasing
involvement in international
operations


both outward and
inward processes”


Lawrence S. Welch (1988)


5

What is meant by IT?

(1)
Digitization

of information goods


enabling computerized processing and


transmission



E.g.: Hard copy textbook


e
-
book



E.g.: Classroom lecture


e
-
learning


(2) Worldwide
internet

accessible to all
firms


(1) + (2) = Death of distance?

6

Outward

internationalization

driven by

SALES motives



7

‘Bricks and clicks’ firms

By launching websites firms virtually
“enter” multiple foreign markets


more (A) or less (B) deliberately:


(A) Country specific websites:
“Active” online internationalization


almost like conventional foreign,
direct investments.



8

‘Bricks and clicks’ firms (2)

(B) A standardized website may entail
company internationalization by
“default”


The website generates unsolicited
inquiries not only from neighboring
countries, but from all parts of the
world…


9

Research question

To what extent does website
exposure lure firms into excessive
market diversification?








realizing too late that



on
-
site servicing of




customers in e.g.




UlaanBaatar, Mongolia, is


quite costly!

10

Dot.com firms


Some digitized products can be
sold worldwide at no, or marginal
extra costs, e.g. e
-
books




“Network externalities” further
increase advantages of worldwide
sales (examples: AOL, Wotif, and
eBay)



11

Research question


To what extent does the Internet
supersede firms’ need for local,
physical presence?


For example, why does US
-
based

e
-
Bay (C2C online auctions) have
subsidiaries in more than 10
countries?


12

Inward

internationalization

driven by

SOURCING motives



13

Inward internationalization


A firm’s use of resources located in
foreign countries



Or, put differently:



A firm’s off
-
shoring of one or more
of its value chain activities (‘global
value chain configuration’)

14


A value chain (Porter, 1985):



SUPPORT ACTIVITIES

PRIMARY ACTIVITIES

15

Inward internationalization

.

Location



Operator

Home
country

Foreign
country


In
-
house


Domicile


FDI


Third Party


Outsourcing


Offshore
outsourcing

I&CT

J/V

16

Major off
-
shoring waves


Primary

value chain activities:


1970s


Manufacturing


1990s


Customer services


2000s


Business services



Support

(‘back office’) activities:


1990s


IT


2000s


Back
-
office activities in general

17

Off
-
shoring back
-
office activities

Examples of back
-
office activities
that


through digitization


are
being outsourced to Indian firms:


IT


Accounting


Debt collection


Payroll processing


HR operations


R&D processes

18

Digitizing back
-
office activities

1954
: The era of digitization begins
with Arthur Andersen’s installation
of a 30 tons mainframe computer
(Univac) constructed for
computerized payroll
administration of a GE division.

50 years later
: Almost all back
-
office
activities are computerized

19

Which firm types are affected?


Large corporations re
-
locate or
outsource their existing back
-
office activities (Shared Services
Centers) to low
-
cost countries



Business services firms (e.g.
Accenture) re
-
locate their primary
value chain activities to low
-
cost
countries

20

Research questions

Do sourcing motives also entail
internationalization of
small and
medium
-
sized

companies?


If yes, is it then mainly through
outsourcing

of
particular

value
chain activities?


21

Limits to off
-
shoring


Limited pool of skilled labor



Factor cost convergence


Labor union intervention


Government intervention


Local culture, language, and
legislation (Danish tax laws!)


Minimum scale and volume


Lack of mgt and I&CT capacity



22

Sales
-
oriented, global

value chain configuration







HQ, sales units, and mini
-
replica


Requires modest coordination and
IC&T sophistication

Norway

Sales

Sales

Germany

USA

Denmark

23

Sourcing
-
oriented, global

value chain configuration








Integrated network of dispersed activities


Requires a lot of coordination and
extensive use of I&CT

China

Manufacturing

IT

India

USA

Denmark

R&D

HRM

M&S

24

Configuration complexity


Even with sophisticated I&CT tools at
hand, the global value chain
configuration is a great challenge to
the managerial capacity of the firm.



To say that the number of potential
configurations is large


is an
understatement...


25

A simplified illustration


2 locations (e.g. DK and India)


3 organizational forms (FDI,
outsourcing, J/V)


2 candidate O/S or J/V partners in both
Denmark and India


9 separable value chain activities




(2 x (3+2))
9

= 10
9

= 1 billion
potential value chain configurations!

26

Finally, a few

macro and welfare
perspectives



27

The knowledge race


Do we [= the Danes and citizens
in other industrialized countries]
have the knowledge base needed
for maintaining and creating
interesting and well
-
paid jobs for
all citizens in this new, global
economic order? Are we better
educated?

28

Higher Education

Proportion in age group 55
-
64 years

0

10

20

30

40

50

China

Malaysia

Poland

Hungary

Germany

DENMARK

UK

Sweden

Belgium

Norway

Finland

USA

Korea

Japan

Ireland

Pct.

Kilde: OECD
-

Education at a glance 2003

.

29

Higher Education

Proportion of age group 45
-
54 yrs

0

10

20

30

40

50

China

Malaysia

Poland

Hungary

Germany

DENMARK

UK

Sweden

Belgium

Norway

Finland

USA

Korea

Japan

Ireland

Pct.

Kilde: OECD
-

Education at a glance 2003

30

Higher Education

Percentage in age group 35
-
44 years

0

10

20

30

40

50

China

Malaysia

Poland

Hungary

Germany

DENMARK

UK

Sweden

Belgium

Norway

Finland

USA

Korea

Japan

Ireland

Pct.

Kilde: OECD
-

Education at a glance 2003

31

Higher education

Percentage in age group 25
-
34 years

0

10

20

30

40

50

China

Malaysia

Poland

Hungary

Germany

DENMARK

UK

Sweden

Belgium

Norway

Finland

USA

Korea

Japan

Ireland

Pct.

Kilde: OECD
-

Education at a glance 2003

32

Conclusions


Because of IT and the advent of
an all
-
embracing internet,
business managers are now
thinking


and acting


in terms
of value chain configuration on a
global scale.



33

Conclusions (2)


The next few years will show
whether we
[insert your
nationality here!]

are clever
enough to maintain and create
interesting and well
-
paid jobs for
all fit citizens in this
brave new
world of globalization…


End of inaugural presentation

May 5, 2004


Ladies and gentlemen…

I thank you for your attention!


INT cordially invites you

to a reception in the

FUHU Faculty Club (3
rd

floor)