L1 - Introduction to

International Management
Olof Brunninge
 Agenda
• Globalization:
– The national level
• Importance of international business
• Internationalization theories:
– The company level
• Why go international?
• How is international management different?
• An internationalization case

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A few current international management topics

4
5
The Belt and Road Initiative

6
 Foreign direct investment (FDI)

Firms undertake FDI in different ways, including

• setting up manufacturing or assembly operations, or other physical facilities
• opening a sales or representative office (or other facility) to conduct
marketing and distribution activities
• establishing regional headquarters

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 Current trends in FDI

UNCTAD World Investment report 2024:

• 2% FDI decline world wide, but >10% decline if we exclude some major
transactions in Europe
• Decreasing FDI flows to developing countries, mainly developing Asia
• Cross-border M&As down 50% from 2022
• Some increase in greenfield investments

Source: UNCTAD World Investment Report, 2024

FDI INFLOWS (HOST FDI OUTFLOW (HOME
ECONOMIES) ECONOMIES)
 Long-term trends in FDI contd.

Around
1.300
Billion USD
in 2023

Source: UNCTAD World Investment Report, 2011

Globalization – How new is it?

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 Phases of globalization since the early
1800s
1. 1830-late 1800s: Introduction of railroads and ocean
transport
• Rise of manufacturing: cross-border trade of commodities,
largely by trading companies
2. 1900-1930: Rise of electricity and steel production
• Emergence and dominance of early MNCs in manufacturing,
extractive, and agricultural industries
3. 1948-1970s: Formation of GATT, conclusion of WWII,
Marshall Plan to reconstruct Europe
• Concerted efforts on the part of industrializing Western
countries to gradually reduce barriers to trade, rise of MNCs
from Japan, cross-border trade of branded products, cross-
border flow of money
4. Since 1980s
• High growth rate of cross-border trade of products, service, 12
capital
 Forces affecting the growth of
international business
1. Overall macro-economic conditions
2. Degree of receptivity to foreign enterprises
3. Degree of capital liberalisation
4. Trade protectionism
5. Transport and communication technology

➢ These factors are interrelated

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 Foreign trade theories: Theory of
absolute cost advantages
(A. Smith, 1776)
➢ If specialization leads to economies of scale or if countries have
different cost structures, foreign trade can be advantageous, if the
absolute production costs of one good are higher in one country and
those of another good are lower in another country
➢ Assumption: goods internationally mobile, production factors immobile

Good 1 Good 2 If demand in A and B=5 units:

Country A 10 SEK 5 SEK A: (5x10)+(5x5)=75 SEK
B: (5x5)+(5x10)=75 SEK
Country B 5 SEK 10 SEK Total costs: 150 SEK

➢ With foreign trade:

A specialises in Good 2 (10x5 SEK)=50 SEK
B specialises in Good 1 (10x5 SEK)=50 SEK
Total costs: 50+50=100 SEK
➢ Foreign trade leads to increased welfare of 50 SEK, A and B could
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profit with 25 SEK each
 Theories of international direct
investment – Product life cycle theory
(Vernon, 1966)
• Early in a PLC, all parts and labor come from where product was invented
• As product is adopted world-wide, production moves away
1. Introduction: new products, some export (introduced in other developed
countries)
2. Growth: copy product produced elsewhere and imported to home country;
production moves to other countries
3. Maturity: industry contracts and concentrates, lowest cost producer wins
4. Decline: poor countries as only markets for product

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 Eclectic paradigm (Dunning, 1979)
• Mode and extent of international actitivities do not
depend on one cause, but a number of different
factors:
– Ownership
– Location
– Internalization

Ownership Internalization Location

Licensing YES NO NO
Export YES YES NO
FDI YES YES YES

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 Why do firms internationalize?

Well, first of all, should you internationalize at all?

1. Are there potential benefits for your company?

2. Do you have the necessary management skills?
3. Will the costs outweigh the benefits?

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 Why do firms internationalize?

The domestic market offers limited growth opportunities

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 Why do firms internationalize?

Customers internationalize

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 A not so often talked about reason

Upstream internationalization

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 Being international from the beginning
The business opportunity itself spans more than one country
emmaoclothing

http://1.bp.blogspot.com/-57CDnwzpHSY/UwNt_BI9tFI/AAAAAAAACY4/pbjS1-FSqMQ/s1600/profilna.jpg

Emma Östergren worked

as a model in South Africa
in 2010.

Handmade crochet
garments

Now, dozens of women in

Zimbabwe have full-time
employment thanks to her
business. She has more
than 200.000 followers on
Instagram
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 Why do firms pursue
internationalization strategies?
1) Seek opportunities for growth through market diversification
2) Earn higher margins and profits
3) Gain new ideas about products, services, and business methods
4) Better serve key customers that have relocated abroad
5) Be closer to supply sources, benefit from global sourcing
advantages, or gain flexibility in the sourcing of products
6) Gain access to lower-cost or better-value factors of production
7) Develop economies of scale in sourcing, production, marketing,
and R&D
8) Confront international competitors more effectively or thwart the
growth of competitors in the home market
9) Be present in industrial clusters

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Source: Based on Cavusgil et al. 2008: 17-8
A case
 What do internationalization
processes look like?
The Uppsala school (Johansson & Vahlne)

• Internationalization is a gradual process: Firms expand and commit

more resources to international markets as they gain more knowledge
on international markets
• This typically happens through a series of stages, targeting countries
with increasing psychic distance

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 The Uppsala school’s stages

The entrepreneur establishes a

Stage 1 domestic market

The entrepreneur sells abroad

Stage 2 through an agent

The entrepreneur establishes a

Stage 3 subsidiary which deals directly
with customers

Production in overseas markets

Stage 4 through a subsidiary operation
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 Key dimensions of the Uppsala model

Asset commitment

Psychic
distance

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The concept of psychic distance

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 Types of distance

• Cultural distance
• Administrative
• Geographic distance
• Economic distance

The Uppsala school talks of ”psychic distance” as “…factors preventing or

disturbing the flow of information between firm and market” (Johanson &
Wiedersheim-Paul 1975: 308). This addresses mainly cultural distance, but
partly also administrative/economic distance and it correlates to some extent
with geographic distance.

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• Founded 1891
How many products
• Bancruptcy 1921
does Scania make?
• Last red figures 1934

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Scania annual
report 2017
Scania’s markets

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 The development of Scania’s world I

• 1897 First car in Sweden

• 1915 150 vehicles (76 cars, 74 trucks) 30% exports
• 1932 US inspired bulldog bus
• 1946 Beers importer in NL
• 1948 Volkswagen’s importer
• 1949 Less than 10% exports
• 1957 Brazil
• 1958 EEC established
• 1964 Zwolle plant
• 1966 Cab company in Oskarsamn/Meppel acquired
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 The development of Scania’s world II

• 1960s Katrineholm, Sibbhult, Falun

• 1976 Argentina
• 1990s Slupsk & St. Petersburg
• 1992 Angers plant
• 1995 Sweden in the EU, component production moved to Sweden
• 2002 Scania leaves Katrineholm
• 2006 Axles and gearboxes concentrated to Södertälje
• 2022 St. Petersburg plant closed
• 2024 Slupsk plant closed

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 Organizing international operations

Bartlett & Ghoshal framework

Two dimensions: global integration & local responsiveness

• International organisation (coordinated federation)

• Multinational/multi-domestic organisation (decentralised federation)
• Global (product division) organisation (centralised hub)

• Transnational organisation (global matrix)

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Scania
presentation 35
from 2005
A Scania is always a Scania

Country of origin?

Today Scania manufactures identical

parts and components at all production
units. Due to Scania’s global quality and
environmental standards, as well as its
shared production system, it is of no
significance to the customer where
Scania vehicles and components
are manufactured. A Scania is always a
Scania.
Annual Report 2003

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 How has Scania’s international
organisation changed?

1910 1965 2005

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