5SSMN238
1. Much International Business research and practice relies on culture as a theoretical concept and associated operationalizations such as the Hofstede framework. Please discuss this critically. Would an institutional approach be an appropriate alternative framing?
Indicative answer:
The students should first discuss the cultural approach to international business. They can use the definition by
Mead, according to which culture “is a body of learned behavior, a collection of beliefs, habits and traditions, shared by a group of people and successfully learned by people who enter society.” They should then move on to discussing the Hofstede framework, involving the following key dimensions: power distance, individualism
vs. collectivism, masculinity vs. feminity, uncertainty avoidance, time orientation, and indulgence, which was
added later. There are three key problems with culture and associated conceptualizations of cultural distance:
first, it doesn’t explain the observed differences across countries; second, there is a real danger to reproduce
stereotypes with limited theoretical value; third, cultures change, but culture concepts don’t really allow to
interrogate why this may be so.
Instead, in order to make sense of context in international business, institutional approaches may be better
equipped. Institutions create and recreate repeated, stable patterns of firm behavior. Strong answers will refer here to the definitions by North (1990) and Scott (2008). North depicts institutions as the humanly devised
rules of the game, while Scott looks at institutions across three key pillars: cognitive, normative, and regulative. Very strong answers would discuss how institutions have a double-function: they offer coordination mechanisms, but they also offer legitimacy. They differ across countries in non-random ways, for example between CMEs and LMEs. Here, the concept of institutional distance has been developed to capture these differences,
and to explore how they matter for MNCs as they try to compete in both markets of a particular country pair.

2. Explain how the cultural and institutional distances affect the firm’s capital market liability of foreignness (CMLOF).
Indicative answer:
The students should discuss the following related to the CMLOF:
Institutional distance is the degree of separation or the extent to which institutions differ between countries.
Substantial institutional differences create difficulties for foreign firms attempting to achieve legitimacy in a host
country. Of the three dimensions of institutional environment mentioned above, the regulatory dimension is particularly salient in explaining LOF in capital markets. The regulatory dimension consists of the rules and laws that provide support for product and capital market participants, and facilitate firms’ efforts to
acquire resources.
Culture is often defined as a system of shared values, beliefs, and attitudes that influences individual perceptions and behaviors. In recent years there has been a growing recognition that culture affects both economic exchange and outcomes by affecting expectations and preferences. Very strong answers will relate this to more general concerns regarding liability of foreignness as one key challenge for MNCs in foreign settings.

3. How does the home-country environment of EMNCs (Emerging Market Multinational Corporations) differ from that of MNCs from ‘advanced economies’? What unique challenges does this entail for EMNCs as they enter the global stage?
Indicative answer:
EMNCs, that is MNCs from Emerging Markets, face a number of challenges related to their home-country institutions. For example, they face great political risk and uncertainty at home. More broadly, there are significant institutional voids in the sense of the absence of market-supporting institutions and mechanisms. These challenges can translate into advantages when they move into countries characterized by similarly challenging environments. In comparison, MNCs from advanced economies typically enjoy greater institutional support. Very strong answers would add the observation that advanced economies show a variety of institutions too, not least coordinated and liberal market environments.
Meanwhile, when entering into advanced or developed economies, EMNCs often face a serious kind of liability of
foreignness—liability of emerginess. For example, they typically suffer from low brand awareness. Also, they often don’t have the same capabilities and competencies to produce at a level that satisfies demanding customers in advanced economies.
Very strong answers will discuss the existence of ownership advantages and the internationalization pathways of EMNCs as discussed in Ramamurti (2012). For example, Ramamurti makes the argument that EMNCs often leverage the differences—or distances— between emerging and advanced economies by engaging in arbitrage strategies. Also, very strong answers will link the discussions on the challenges and disadvantages to the observation that many EMNCs engage in strategic asset-seeking, in the process engaging in acquisitions of a number of firms from advanced economies offering superior technology.

4. Compare and contrast the two competitive pressures experienced by a firm when it goes international. Explain various internationalization strategies that evolve from these pressures.
The students are required to discuss pressure for cost reduction and pressure to be locally responsive i.e. Standardization v/s Customization. Besides the description, the comparison should be executed with examples. These pressures when placed on a continuum give rise to four distinct strategies i.e. Multidomestic,
International, Global, and Transnational Strategy. In particular, Mutidomestic Strategy refers to customization
of goods or services for distinct consumer preference across varying national markets. International Strategy centralizes product development, while manufacturing and marketing globally. Global Strategy pertains to increasing profitability by pursuing a low-cost strategy on a global scale. Finally, transnational strategy focuses on delivering low-cost and differentiated products across markets and flow of skills across subsidiaries. Students
are required to provide examples of different industries/products. For instance, Electronics (Global),Telecoms (Transnational), Cement (International) and Apparels (Multidomestic) to support their answers. Students may provide the reference of Disney as discussed in the Tutorial Case Study.