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BUI 6111: Global Business Environment

Date : 5, February 2017.


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1.Explain the success and failure of global firms based on institution- and
resource-based views.

The success and failure of the global firms are affected by the two core
perspectives: institution- based view, and resource- based view. Institution-
based view means that the institution governs individual and firm behavior
formally and informally. So, its view consists of formal rules (laws, regulations,
and rules) and informal rules (cultures, ethics and norms). As an example of
formal rules, before the election of 2010 in Myanmar, there was only Telecom
Company that was owned by the government. Other telecom private companies
were not allowed to do the business in Myanmar. Today, another two telecom
company: Ooredoo and Telenor are coming in Myanmar because of the
government's openness. As a result of the changing rules, the two companies
can get the first mover advantages, and be successful. And another example is
that until very recently, the Office of the Register of Deeds in Myanmar did not
accept long-term foreign leases for registration. This fact made the global firms
difficult to get land. The Foreign company also became to face difficulty.
Informal institutions include cultures, languages, norms, behavior, religion,
education, and ethics. They have the effects on the success and failure of the
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businesses when these businesses come to be globalized. These informal


institutions make the communication between businesses better, and also worse
without the knowledge of these, even though the situation of businesses is good
in the formal institution. The businesses that want to globally must know the
behavior, culture, religion, and education of the people lived in the host country
because these people will become the business's customers. So, the global firms
should and must take care the effects of informal institutions. The second core
perspective, the resource- based view, affects the success and failure of the
global business. How? Whether the performance of global firms is good or bad
is determined by the environment. In this view, there are two parts: the
performance of the firm and the view of the environment. So, the firms make
the success by using their resources effectively and efficiently for giving their
customers the best. For example, the Coca-cola company expanded the business
in Africa. At that time, there was a poor infrastructure, especially transportation
in Africa, so the company decided to promote the transportation, the company
built the road. It means that the company obtains the positive view of the
African by adding the value to the customer. Finally, the company makes a
large success. In this case, the performance of the firm adds the value to the
firms and the consumers, as the result of this performance, the firm can get the
positive view of their customers. All of these facts, the two views make the
firms around the world successful and failed.
2. Describe the VRIO framework.
VRIO is value, rarity, costly to imitate, and organization in the short
term. It is used in analyzing the company's the internal resources and
capabilities for the company's sustained competitive advantages. VRIO analysis
is very useful in identifying the advantages that our organization may possess
over the competitors. Firstly, what is the value? In Cambridge Dictionary, the
value is the degree of importance given to something. The company' s resources
add the value to the company by catching the opportunities and overcoming the
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threats. And these resources can give the company the increasing perceived
customer value. If the resources can not add the value, the company will face
the competitive disadvantages. Are we sure that the valuable resources and
capabilities are rare? Rarity means a measure of the scarcity of an object in
Cambridge dictionary. Not only the firms should possess the valuable resources
and capabilities, but also these resources and capabilities should be rare over the
competitors.

Source: Rothaermal' s (2013)


"Strategic Management"

And the third one is costly to imitate. Imitability is that the competitors have a
difficult time to imitate. For example, CP all corporation has a very vast
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resources and also powerful capabilities over the competitors and imitators. The
competitors can not imitate quickly because CP All has made the collaboration
with other firms. So, there are a lot of firms under the CP All umbrella, so that
the resources and capabilities would costly and rarely to imitate. The final part
is how can the firm be organized to develop and leverage the full potential of its
resources and capabilities?. The resources and capabilities itself do not give any
advantage to the firm if it’s not well- organized to capture the value from them.
A firm must and should organize, manage, and control these resources and
capabilities by using its management systems, processes, policies,
organizational structure and culture to be able to fully realize and obtain the
potential of its valuable, rare and costly to imitate resources and capabilities.
Only then the companies can achieve sustained competitive advantage.
3. Elaborate on Michael Porter’s “diamond” theory.
Michael Porter’s “diamond” theory is also known as the theory of
national competitive advantage of industries. Porter argued that some nations or
industries within local have more competitive advantages than others based on
the global scale. Why? The reason is that these nations and industries can create
the potential competitive advantages by applying their organizations with
specific factors and resources. In diamond theory, there are four aspects figured
the diamond: factor endowment, domestic demand conditions, national firm
strategy, structure and rivalry, and related and supporting industries. The first
aspect of diamond theory, factor endowment or factor condition, means the
inputs that are necessary to produce goods and services. The contributions to
carry out the business have two parts: fundamental factors (natural resources
and labors), and advanced factors (infrastructure and communication system). If
the industry has all these inputs, it will achieve in the global market. For
example, Myanmar is rich in the natural resources, but short in technology and
infrastructure. It is sure that Myanmar does not have the enough factor
endowment. The second point is domestic demand condition. Demand
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conditions refer to the size and nature of the customer base for products. When
the product is required in the local market, the company emphasizes to create
new products, improve the quality, and to make the customer satisfied over the
global competitors. It also helps the local company grew up and looked forward
to the global trend. Third, although strategy of the firms, structure, and rivalry
are quite different among the countries, strategy helps the company to set
corporate objectives and new goals, structure assists to organize and manage the
production and operation, and the rivalry gives some helps like making the
innovative ideas and generating the product development. Finally, in the related
and supporting industries are there two parts: related industries, and suppliers. If
the local firms have the big and local suppliers and related industries, the firms
would get the raw materials at the lower price, and receive the innovative parts
and products.

Overall, Porter argued that the four determinants are related


interactively with each other, and further suggests that a primary role of
government in driving and managing a nation's economy is to stimulate and
challenge businesses within the country to focus on the creation and
development of the elements of factor conditions.
4. Compare and contrast the advantages and disadvantages of a strong and a
weak US dollar.
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Nowadays, 65% of world' s currency exchange holdings are in dollars,


and 80% of the world's foreign exchange transactions are in dollars, as well. So,
the factor whether the value of dollars is appreciated or depreciate affects the
business around the world.
The value of dollars is appreciated.
Advantages Disadvantages
-US tourists can travel at a low price -It is more expensive to travel in the
around the world. US for the tourists from the foreign
country.
-The consumers in the US can buy the
foreign products with lower price. -The consumers from the foreign
countries pay the high price for the US
- Foreign companies that do
products.
investment in the US will benefit.
-The US exporters face a hard time to
-The inflation rate in the US is kept
compete for price globally.
low because of low prices on foreign
goods. -The US firms that do in abroad can be
hurt.

The value of the US dollar is depreciated.


Advantages Disadvantages
-Tourism to the US is low. -The tourist from the US will cost the
heavy price to visit abroad.
-The consumers from the foreign
countries will pay cheap prices for the -The US consumers will face a higher
US product. price for foreign products.
-The US companies that do investment -Foreign firms that do businesses in
will get benefited. the US will be hurt.
-The inflation rate in the US is
increased because of higher prices of
imports.

5. Discuss whether global and regional economic integration (such as TPP,


ASEAN) creates more benefits or more challenges.
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Global economic integration contributes the efforts to make the trade


and investment barriers reduced globally. General Agreement on Tariffs and
Trade (GATT) was founded in 1948, and the World Trade Organization (WTO)
in 2005 as well. The aim of building the global economic integration is to
reduce the trade barriers and to invest more and efficiently around the world.
But we got the benefits both politically and economically. By integrating global
economies, the world' s countries can seek and build the confidence. They knew
that the lack of the trust caused the trade wars in the 1930s. They implement to
promote the peace among them automatically by integrating the economy
globally. And we get the economic benefits. First is to handle disputes
constructively. For example, the disputes bring to the WTO, and then WTO
offers the resolution of the conflicts. Second, the global economic integration
makes all the participants easier for life.
Regional economic integration contributes the efforts to make the
trade and investment barriers reduced within one region such as the South East
Asia, and the European. Both political and economic benefits are the core ones
by integrating regional economies. The regional countries can promote peace
and build the confidence each other politically. Economically, free trade area
and investment among these countries become more and more, and it makes
these countries raised incomes, and stimulated economic growth, finally
brought the additional benefits (larger market, and simpler standard). Moreover,
the people in the region have a chance like a visa- free for 1weeks or 10 days.
On the other hand, the businesses are facing product dumbing. The
people are quickly getting every product with high quality and low cost that
produced by the foreign firms. So, the local businesses face the higher
competition. It is the challenge that every firm around the world may face.
6. Explain briefly the meaning of liability of foreignness. Why is it difficult for
companies to succeed in foreign markets?
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Zaheer (1995) said that the liability of foreignness is all additional


costs a firm operating in a market overseas incurs that local companies would
not incur. The liability of foreignness is the inherent disadvantages for the firms
that operate in a foreign market. These businesses face and experience a lot of
struggles in the host countries because of the different cultures, language, rules
and regulation, behavior, and norms. Think about the differences in languages
and rules between western countries and eastern countries. How do the firms
overcome these differences? It is really tough for companies to succeed in
unfamiliar environments or foreign markets because the foreign companies face
the numerous different formal and informal institutions in the various countries.
And the second reason is that some countries still have formal discriminatory
policies imposed by the government. Also, the foreign firms are often still
discriminated informally, although some countries make the dissolution of the
legal discriminatory policies.
7. Identify the advantages and disadvantages that pertain to first movers.
First movers are the companies that enter early in the market and
firstly produce the new and particular product and service in the market. Being
the first movers gains the advantages over the competitors, and struggles to
survive more than the competitors. The benefits are:
- A first-mover may be able to gain huge profit margins and a monopoly-like
status in the market due to lack of competition.
- A first mover may obtain and hold on having patent protection as an
advantage, and the people may recognize the brand name of the first mover.
-A first mover may build the sound and valuable relationship with the key
stakeholders such as customers, suppliers, and shareholders.
The struggles of the first movers are:
-A first mover may lose the opportunity to free ride on first mover investments.
-The first movers may contribute a huge set- up cost, but it is not sure to get
back the profit margin in the short run, but in the long run, maybe.
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- The research and development costs may be enormous because they may need
to create and innovate for survival and being the first movers.
-A first mover may face both the uncertainty about the market reflection and the
technological errors.
References
Mike W. Peng (2011), Global Business (3rd ed), South-Western, Cengage
Learning
https://www.strategicmanagementinsight.com/tools/vrio.html
http://www.investopedia.com/terms/p/porter-diamond.asp
http://www.toolshero.com/strategy/porter-diamond-model/
http://www.businessmate.org/Article.php?ArtikelId=49
http://www.investopedia.com/articles/forex/051415/pros-cons-strong-dollar.asp
https://www.divestopedia.com/definition/5024/first-mover-advantage
Article Analysis
I."Coca-Cola in Africa"
1. Why is Coca-Cola so interested in Africa, which is typically regarded as the
base of the global economic pyramid?
The following are the reasons of why Coca- Cola is interested in Africa.
-Coca- Cola is the mature stage of the life cycle. Between 2006 and 2011, US
sales declined. In Europe and Japan, sales are similarly flat. In Latin America,
sales are increasing, but the growth is limited. In these situations, Coca-Cola' s
market share is 29% in Africa but Pepsi is 15%. So, Coca-Cola pulled Africa.
-The people in all African countries have known Coca-Cola.. It has the familiar
brand name for the continent.
-In Africa, there is an incredibly young population. Besides disposable income
is growing, Africa' GDP is bigger than Russia and India.
2. What unique resources and capabilities does Coca-Cola have that will help it
compete well in Africa?
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Coca-Cola has the unique resources and capacities that will help it
compete well in Africa. The first one is the well-known global brand name. The
people in the African countries have the knowledge of what is Coca-Cola. The
second is strong commitment. Coca-Cola has committed $12 billion to invest in
Africa between 2010 and 2020. It can face and receive the challenge that can
deep dive into everywhere in Africa. So, it has built the 3000 manual
distribution centers throughout the Africa, while in Mexico it has courted small
corner store. Finally, Coca-Cola creates 65,000 jobs directly concerned with the
company, and one million of jobs indirectly related to it.
3. What are the drawbacks of making such large-scale commitments to Africa?
War, poverty, poor infrastructure are the drawbacks of making such
large- scale commitment to Africa. And, Coca-Cola has to search the solutions
about the critics that accuse it of depleting fresh water, encouraging expensive
and environmentally harmful refrigeration, and hurting local competitors.
4. Do stakeholders in the United States and Africa who criticize Coca-Cola have
a reasonable case against it?
Yes, the stakeholders have a reasonable case against Africa. There are
a lot of risks like government corruption, war, and strife. And poor
infrastructure such as lack of transportation and electricity is also a reasonable
fact against it. Also, reducing fresh water concerns with the fact against it as
well. And, many communities allow using a few calories. Finally, the case is the
refrigeration is expensive and harmful because of the environmental factors. Not
all stakeholders will necessarily agree with the criticisms or feel that they
significant enough to oppose Coca-Cola’s focus on Africa.
II."Unilever in India"
1. From a resource- based view, what were HLL' s competitive advantages prior
to launching Shakti?
From a resource-based view, HLL has analyzed its resources and
capabilities. HLL' s marketing strategy add the value to the company and the
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consumer as well. Due to its premium-priced products, and advertisements, its


brands quickly captured the high and middle classes. And HLL's extensive
distribution system also add the value to the stakeholders. It focused on
efficiencies, reach, and visibility. This focus makes the company got the loyal
retailers and the consumers because of its products' s convenient fashions. These
valuable resources and capabilities are rare. The competitors may be rarely
costly to imitate. They may do the similarities and efficient marketing plan, and
they may get the benefits like HLL's. It organized and managed its people well
and effectively. And it used 10% of its annual turnover on advertising and
media, and its competitors can do like HLL' s advertising techniques.
2. From an institution- based view, what are the barriers against ventures such
as Shakti?
From an institution- based view, due to the largest nation in the world
the first barrier is a different culture between the HLL and the targeted market,
the rural areas. And the language is also different. As a result of these
differences, the behaviors, norms, and customs may be the barriers. Besides, the
rules of the federal government may positively or negatively affect the HLL.
3. Why is HLL pursuing Shakti? Is Shakti successful?
According to HLL' s extensive distribution system, HLL covered and
efficiently provide its products to only the consumers in urban and semi-urban
India. It means that the HLL ' distribution network failed to serve the customers
in the rural areas. There were over 500 million potential consumers stayed in
over 500,000 rural villages. On the other hand, in 1999, HLL's growth
seemingly stopped and faced the struggles to maintain the momentum. In 2000,
it came out the Millennium Plan, Shakti. HLL is pursuing Shakti because it
looks at the vast rural population as a potentially profitable market for its
products and HLL also believed in the design of Shakti that overcomes most of
the barriers.
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Shakti has implemented its network to cover 8,000 villages through


Shakti entrepreneurs in 12 out of the 28 states of India. So, it means that HLL
can build the extensive rural network. It also creates goodwill and awareness for
the company by using local people to act as spokespersons. And it can take the
first mover advantages. Therefore, it achieves.
4. From the perspective of those at the base of the pyramid, what is the impact
Shakti' s activities on poverty alleviation?
Under the Shakti umbrella are there three separate programs: (1) the
Shakti Entrepreneur Program, (2) the Shakti Vani Program, and (3) the I-Shakti
community portal. Shakti uses the network of self- help groups that had been
created by the federal and state governments across villages. From each
program, HLL support poverty alleviation decreased a little. The first program
targets the rural women and is the longest running and most successful program.
HLL trained the women to become the Shakti entrepreneurs, and then it did
expand its network via these entrepreneurs. Its program helps the women's
condition improved positively, gave a chance how doing the business. If they
earned more, they would invest more. The Shakti Vani Program does not
operate any direct profit for HLL. From this program, the rural people got some
information and awareness on important issues like health, hygiene, and
personal care. It means that they have got knowledge. The final one is the I-
Shakti community portal that makes the available internet connection, relevant
information, and education services to rural areas. It supports them to link to the
internet that they can learn everything they wanted happening around the world.
Shakti connected the rural people to the world and gave the right to see what the
people are doing around the world. Therefore, Shakti' s activities impact on
poverty alleviation positively.
5. What metrics can Shakti use to measure its impact on poverty?
To measure Shakti' s impact on poverty, it can use quantitative metrics.
It helped the people in the rural areas by emerging the lady entrepreneurs,
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giving the information, and linking to the internet. So, it counted the number of
villages, and entrepreneur they reached. In 2003, there were less than 3000
entrepreneurs, but in 2006, it aimed to reach 100,000 villages and 30,000
contractors.
6. What should Shakti do to increase its effectiveness in relieving poverty?
Because of the sheer size of the population, Shakti has generated a
sheer size of the operations. The size of the operation has also brought the
challenges and threatened its effectiveness in relieving poverty. It means no
enough SHG. This fact caused to decrease its effectiveness in relieving poverty.
So, SHG has grown to 45 at HLL, and the company makes the relationship with
the non-profit organizations and non- traditional partners. The collaborating
makes the firm effective in poverty alleviation, but the firm faces the
challenges. Also, Shakti should put the effort on coming out the entrepreneurs.
They can distribute their knowledge to others. It supports upgrading the
education level. And, Shakti should make the transportation easier. The better
transaction, the smoother trade, as a result, the lower poverty.