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International Business To add

IB 2.2 Silicon valley

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Page 1: IB 2.2 Silicon valley

International BusinessTo add

Page 2: IB 2.2 Silicon valley
Page 3: IB 2.2 Silicon valley

Another View

Page 4: IB 2.2 Silicon valley

Explaining Internationalization

• Early contribution of ‘Uppsala model’: Johanson & Wiedersheim-Paul 1975; Johanson & Vahlne 1977

• Key insight: internationalization is an incremental commitment, in terms of (a) geographical sequence and (b) entry mode choice, due to the gradual accumulation of experiential knowledge of foreign markets reducing the uncertainty effect

• interplay between knowledge and commitment the key driver

Page 5: IB 2.2 Silicon valley

Distinctiveness of Uppsala model

‘We do not believe that [internationalization] is the result of a strategy for optimum allocation of resources to different countries where alternative ways of exploiting foreign markets are compared and evaluated.

We see it rather as the consequence of a process of incremental adjustments to changing conditions of the firm and its environment.’ (Johanson and Vahlne 1977, p. 35)

Page 6: IB 2.2 Silicon valley

Empirical basis for model: e.g.

• PHARMACIA: • 9 overseas affiliates at the time. • In the case of 8, the firm had received orders from foreign

market, then signed an agency/licensing agreement. • After a few years, established sales subsidiary (or made an

acquisition in 1 case).• In two countries began manufacturing, but only less

complicated production at first. • In case 9, started a sales subsidiary almost immediately,

but company decision-maker had prior country experience.

• (Johanson & Vahlne 1977)

Page 7: IB 2.2 Silicon valley

Incremental pattern (1): ‘Establishment chain’

No regular export

Direct exporting, via independent agent/distributor

Establishing foreign sales subsidiary

Foreign production/ manufacturing

Johanson & Wiedersheim-Paul 1975; Johanson & Vahlne 1977; cf Bilkey & Tesar 1977, Cavusgil 1980, Czinkota 1982

Page 8: IB 2.2 Silicon valley

Psychic distance

Market selection: firms tend to enter psychically close markets firs

Markets in terms of differences in language, culture, political systems, level of education,

levels of industrial development, etc.’

Factors preventing or disturbing the flows of information between firms

Page 9: IB 2.2 Silicon valley

Why these patterns? A process explanation

• ‘the firm develops knowledge when it operates in the market,

• this knowledge enables the firm to better see and evaluate business opportunities, consequently, to make new market commitments.

• In their turn, these commitments lead to learning and the ability to identify new market opportunities, and so on.’ (Johanson and Vahlne 2003, p. 9)

Page 10: IB 2.2 Silicon valley

Market (Experiential) Knowledge

Market Commitment

Commitment Decisions

Current Activities

STATE ASPECTS CHANGE ASPECTS

Johanson & Vahlne 1977, p. 37

The Uppsala model

Page 11: IB 2.2 Silicon valley

Market Commitment

Commitment Decisions

Current Activities

STATE ASPECTS CHANGE ASPECTS

Johanson & Vahlne 1977, p. 37

The Uppsala model

• Lack of market/operations knowledge =main obstacle to internationalization

• Can only be acquired through first-hand experience

• Includes i.e. getting to know customers, suppliers, government agencies

• Includes firm’s internationalization knowledge: firm’s own resources and ability to develop international operations

• Reduces uncertainty associated with foreign market commitment

• Provides framework for perceiving and formulating business opportunities

Johanson & Vahlne 2003, p. 10

Market (Experiential) Knowledge

Page 12: IB 2.2 Silicon valley

Market Knowledge

Market Commitment

Commitment Decisions

Current Activities

STATE ASPECTS CHANGE ASPECTS

Johanson & Vahlne 1977, p. 37

The Uppsala model

Result of the conception of business opportunities, which in turn are a result of market (experiential) knowledge.

Johanson and Vahlne 2003, p. 12

Page 13: IB 2.2 Silicon valley

Market Knowledge

Market Commitment

Commitment Decisions

Current Activities

STATE ASPECTS CHANGE ASPECTS

Johanson & Vahlne 1977, p. 37

The Uppsala model

• Largely consist of ‘everyday contact with customers, intermediaries, suppliers, authorities and other individuals and organisations important to their firm’

• ‘current activities evidently have a continuous impact on internationalisation, occasionally being interrupted by discontinuities…’

• By interacting with other firms in a market, the firm learns about their needs and situation

• Interaction builds trust, which is an important element in commitment building

(Johanson and Vahlne 2003:11)

Page 14: IB 2.2 Silicon valley

Market Commitment

Commitment Decisions

Current Activities

STATE ASPECTS CHANGE ASPECTS

Johanson & Vahlne 1977, p. 37

The Uppsala model

• Market commitment: i.e. not just investment, but also marketing and sales e.g., after-sales service commitments

• Amount of commitment: i.e. level of investment

• Degree of commitment: extent to which commitment cannot easily be withdrawn, and is defended by the firm

• Degree of commitment dependent on firm’s resources and capabilities at home

Johanson and Vahlne 2003, p. 12

Market (Experiential) Knowledge

Page 15: IB 2.2 Silicon valley
Page 16: IB 2.2 Silicon valley

Hall

High-context and Low-context cultures

Dimensions of time

Relationship of man with nature and space

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Page 18: IB 2.2 Silicon valley

Dimensions of National Culture

1- Power distance

2- Individualism/collectivism

3- Masculinity/Femininity

4- Uncertainty avoidance

5- Long/Short term orientation

Page 19: IB 2.2 Silicon valley

Multiple of Cultureor ‘interfaces’ (Saner)

ProfessionalProfesional

FunctionalFuncional

CompanyCompañía

IndustryIndustria

Regional/ NationalRegional/Nacional

Page 20: IB 2.2 Silicon valley

The Contexts ofInternational Negotiations

Page 21: IB 2.2 Silicon valley
Page 22: IB 2.2 Silicon valley

Influence of Culture on Negotiation: Managerial Perspectives

• Definitions of negotiation• Negotiation opportunity• Selection of negotiators• Protocol• Communication• Time sensitivity• Risk propensity• Groups versus individuals emphasis• Nature of agreements• Emotionalism

Page 23: IB 2.2 Silicon valley
Page 24: IB 2.2 Silicon valley

Cultural Categories

Page 25: IB 2.2 Silicon valley

National Communication Patterns

Finland

USA

Germany

Page 26: IB 2.2 Silicon valley

USA Germany

Japanese Arabic

Page 27: IB 2.2 Silicon valley

Japanese Business

Page 28: IB 2.2 Silicon valley

xxxx xxxx xxx

I. Emperor’s Rule

II. Samurai’s Rule

X

III. Modern-ization

WAR

IV. Postwar

Clan fight

s

× 645

NARA

Centralizatio

n

HEIANNobles,

Decentralizati

on

Internal

wars, dynam

ic & fluid

society

Peace, isolati

on, conservative class

society

EDO

Tokugawa

Shogunate

KAMAKURAMUROMACH

ISENGOKU

1867

MEIJI

Westernization,industrializatio

n,militarilization

Rapid recovery and

growth

Hunting & gathering

Taika Reform

Rice

Chinese culture &political system

Buddhism

WEST: guns &Christianity

WEST!!! US occupation

1945-52

1603

Page 29: IB 2.2 Silicon valley

Japan’s Multi-layered Identity

先史時代の日本

Rice cultivation

Heian & Samurai Culture

Western influence

Edo Culture

Guns & Christianity

Pre-historic Japan

Buddhism, China

Note: Colored areas indicate external impacts

Page 30: IB 2.2 Silicon valley

1960 ~ 1970 ~ 1980 ~ 1990 ~ 2000 ~1950 ~1940 ~

<Japanese Economy Trends>

<Management Innovation History>

Wartime controlled economy

Postwar recovery period

High-growth period

Energy saving & lean management

Bubble economy

Heisei recession

Recovery period

Process management methodology

American style management method

Productivity improvement

Strategy & marketingMarket-based flexible manufacturing

Japanese style management

American style global management

Japanese Economy and Management Innovation

Page 31: IB 2.2 Silicon valley

Japanese keiretsuTypes

- Horizontal keiretsu - Vertical keiretsu

Characteristics- Extensive share cross-holdings- Personnel swaps- Strategic coordination- Commercial transactions

Page 32: IB 2.2 Silicon valley

Yataro Iwasaki (1835-85)Mitsubishi Zaibatzu

• Seisho (政商 ) from Tosa, founder of Mitsubishi Zaibatsu

• Shipping company--grew fast with government support (receiving gov’t ships, contract for military transport)

• Established Nippon Yusen (NYK Line), fierce battle with Kyodo Unyu (anti-Mitsubushi company), 1883-85

• Expanded to many areas: trade, banking, shipbuilding, coal, mining (later, more)

Bakufu’s Steel Mill in Nagasaki, transferred to Mitsubishi in 1884

Mechanical factory in Nagasaki, ca 1885

PP.45-46

三菱

Page 33: IB 2.2 Silicon valley

Mitsubishi Heavy Industries

Automotive Mitsubishi Fuso Truck Bus Mitsubishi Motors Shin Caterpillar Mitsubishi

Finance & insurance DC Card Diamond Lease Meiji Life Mitsubishi Auto Credit Mitsubishi Securities Mitsubishi Trust & Banking Tokio Marine and Fire

Industrial equipment Mitsubishi Electric Mitsubishi Kakoki Mitsubishi Precision Toyo Engineering Work

Industrial materials Asahi Glass Dai Nippon Toryu Mitsubishi Aluminum Mitsubishi Cable Indus Mitsubishi Materials Mitsubishi Plastics Mitsubishi Rayon Mitsubishi Shindoh Mitsubishi Steel

Electronics & telecom IT Frontier Mitsubishi Research Inst Mitsubishi Space Software Nikon Space Communications

Resources & energyNippon OilMitsubishi LPGMitsubishi Nuclear Fuel Mitsubishi Paper Mills

Transportation & dist Mitsubishi Logistics Mitsubishi One Transport NYK Line

Consumer goods & foods Kirin Beverage Kirin Brewery Ryoshoku

Chemical & pharmaceutical Dai Nippon Toryu Mitsubishi Chemical Mitsubishi Gas Chemical Mitsubishi Petrochemical

Real estate & construction Mitsubishi Estate P.S. Mitsubishi

MitsubishiCorporation

Bank of Tokyo-Mitsubishi

Mitsubishi’s Horizontal Keiretsu

Page 34: IB 2.2 Silicon valley

Major FDI Firms in Meiji Period

FDI was relatively small (cf. China, India). However, it played leading roles in tobacco, oil refining, electrical and general machinery, weapons, automobiles, glass, (aluminum). Later, zaibatsu mostly took over FDI technology and production.

Source: S.J.Bytheway (2005), pp.166-167

Year J apanese name Foreign partner Foreignownshp Remark

1 1893 Standard Oil Standard Oil (US) 100% Later sold to Nippon Oil 2 1899 Nippon Electric (NEC) Western Electric (US) 54% Later under Sumitomo3 1900 Murai Brothers American Tobacco (US) 50% State-owned in 19044 1900 Rising Sun S. Samuel & Co. (UK) 100% Oil business5 1901 Singer Mishin Singer Sewing Machine (US) 100%6 1902 Osaka Gas Mr A.N. Brady (US) 50% Brady capital exits 19257 1903 Tokyo Electrical Train Mr Malcolm (UK) - -8 1905 Tokyo Electric General Electric (US) 38% Later Toshiba, 19399 1906 Osaka Glass Manufacturing Private syndicate (UK, Bel, Fr) 56%10 1907 Nippon Steel Armstrong & Vickers (UK) 50% Weapon manufacturing11 1907 Imperial Spinning J &P Coats (UK) 60%12 1909 Dunlop Rubber Far East Dunlop (UK) 100% Later, 100% J apanese13 1910 Shibaura Manufacturing General Electric (US) 24% Later Toshiba, 193914 1910 Nippon Okijenu & Asechiresu L'air Liquide (FR) 100%15 1910 Lever Brothers Amagasaki Lever & Brothers (UK) 100%16 1910 Nippon Chikuonki Trading Mr. F.W. Hohn (US) - - Phonograph

Page 35: IB 2.2 Silicon valley

Post War Keiretsu

• Mitsubishi• Bank of Tokyo• Mitsubishi/ Bank of Mits

• Nikon• Kirin

• Sutitomo• Sutitomo Bank• NEC

• Mitsui• Toshiba

• Fuyo• Fuji Bank• Marubeni

• Dai-Ichi• Dai-Ichi Kangyo Bank• Cannon• Nissan (part)

• Sanwa• Sanwa Bank• Kobe Steel

Page 36: IB 2.2 Silicon valley

Production Methods & Kaizen

Page 37: IB 2.2 Silicon valley

Taiichi Ohno

Page 38: IB 2.2 Silicon valley

Production Methods & Kaizen

Page 39: IB 2.2 Silicon valley

Production Methods

Page 40: IB 2.2 Silicon valley

Efficiency

• Any production method relies on efficiency – this can be viewed in different ways:

• Productivity – a measurement of output per unit of the factor used (labour, capital or land)

Total Output

Productivity = ------------------- Units of Factor

• Technical Efficiency – output produced using the fewest possible inputs

• Productive Efficiency – output produced at the lowest possible cost

Page 41: IB 2.2 Silicon valley

Efficiency

• Production decisions involve deciding methods for new production runs and analysis of existing methods.

• Decisions may include:• Substitute machinery for labour? • Use of new technology? • Organisation of the production layout? • Change of production method?

Page 42: IB 2.2 Silicon valley

Production Methods

As technology and analysis of production methodology has improved, methods have changed dramatically – what used to be labour intensive production methods are now capital intensive

Page 43: IB 2.2 Silicon valley

Production Methods

Textile factoryCopyright: Stock.Xchng

The choice of production method and the factor inputs depends on such things as:

• the nature of the product

• factor costs

• the scale of production

Page 44: IB 2.2 Silicon valley

Production Decisions

Which method? Type of Product

One-Off Order?

Mass Market product?

Batch?

Market size and Segment

Factor Costs – Land, Labour and

Capital

Complexity of design

Page 45: IB 2.2 Silicon valley

Production Methods

• Job Production – One-off production - each item might have particular specifications

• Flow Production – suitable for mass market products that are identical

• Batch Production – each stage of the production process has an operation completed on it before moving on to the next stage – allows modifications to be made to products that otherwise are the same

Page 46: IB 2.2 Silicon valley

Production Methods

Which is more efficient?

Operation 1 2 3 4 5

6

7

891011Finished Product

Page 47: IB 2.2 Silicon valley

Production Methods

Operation 1

1a 1b 1c 1d

2a 2b 2c

3a 3b 3c 3d

4 Finished product

Or this?

Page 48: IB 2.2 Silicon valley

Production Methods

Or this?

Cell 1 Cell 2 Cell 3

Finished Product Finished ProductFinished Product

Page 49: IB 2.2 Silicon valley

Production Methods• Answer

• It could be any of them!• The design of the production space can influence:

• Output levels• Factor use• Efficiency• Cost levels• Quality assurance procedures

Page 50: IB 2.2 Silicon valley

Kaizen (Continuous Improvement)

Page 51: IB 2.2 Silicon valley

KanbanDo not send defective products to the subsequent process

The subsequent process comes to withdraw only what is needed

Produce only the exact quantity withdrawn by the subsequent process

Equalize production

Kanban is a means to fine tuning

Stabilize and rationalize the process

Page 52: IB 2.2 Silicon valley

Kaizen (Continuous Improvement)

• Japanese concept – not made redundant by the decline of the Japanese economy which may be due to other institutional factors!

• Focus on gradual and continuous improvement

• A whole business philosophy• Importance of EVERYONE buying into the

concept and the vision

Page 53: IB 2.2 Silicon valley

Kaizen

•Efficient stock control methods help reduce costs and improve cash-flow

•Flexible working practices and empowerment – help increase efficiency, reduce costs and improve motivation

•Leadership seen as vital. Ability to communicate a clear vision, take people along with the vision and to think about where the company needs to be in 5, 10, 15 and 20 years time

Fundamental principles – often characterised as ‘lean production’ – reducing waste, zero defects, high quality control measures at all stages

•Punctuality in all aspects – delivery, supply, manufacture, etc.

Page 54: IB 2.2 Silicon valley
Page 55: IB 2.2 Silicon valley

Philosophy(Long-term Thinking)

People and Partners(Respect, Challenge and Grow Them)

Process(Eliminate Waste)

ProblemSolving

(Continuous Improvement and Learning)

Base management decisions on a long-term philosophy, even at the expense of short-term financial goals

Grow leaders who live the philosophy Respect, develop and challenge your people

and teams Respect, challenge, and help your suppliers

Create process “flow” to surface problems Level out the workload (Heijunka) Stop when there is a quality problem (Jidoka) Use pull systems to avoid overproduction Standardize tasks for continuous

improvement Use visual control so no problems are hidden Use only reliable, thoroughly tested

technology

Continual organizational learning through Kaizen Go see for yourself to thoroughly understand the situation.

(Genchi Genbutsu) Make decisions slowly by consensus, thoroughly

considering all options; implement rapidly (Nemawashi)

“4 P” Model of the Toyota Way

Adding Value to Customers &Society

Page 56: IB 2.2 Silicon valley

Base management decisions on a long term philosophy, even at the expense of short-term financial goals

Toyota mission:

• Contribute to the economic growth of the country in which it is located (external stakeholders)

• Contribute to the stability and well being of team members and partners (internal stakeholders)

• Contribute to the overall growth of Toyota

Page 57: IB 2.2 Silicon valley

Principle One

“The most important factors for success are patience, a focus on long term rather than short-term results, reinvestment in people, product, and plant, and an unforgiving commitment to quality.”

-Robert B. McCurry, former Executive V.P., Toyota Motor Sales

Page 58: IB 2.2 Silicon valley

Philosophy(Long-term Thinking)

People and Partners(Respect, Challenge and Grow Them)

Process(Eliminate Waste)

ProblemSolving

(Continuous Improvement and Learning)

Base management decisions on a long-term philosophy, even at the expense of short-term financial goals

Grow leaders who live the philosophy Respect, develop and challenge your people

and teams Respect, challenge, and help your suppliers

Create process “flow” to surface problems Level out the workload (Heijunka) Stop when there is a quality problem (Jidoka) Use pull systems to avoid overproduction Standardize tasks for continuous

improvement Use visual control so no problems are hidden Use only reliable, thoroughly tested

technology

Continual organizational learning through Kaizen Go see for yourself to thoroughly understand the situation.

(Genchi Genbutsu) Make decisions slowly by consensus, thoroughly

considering all options; implement rapidly (Nemawashi)

“4 P” Model of the Toyota Way

Eliminate Waste through Flow& Standardization

Page 59: IB 2.2 Silicon valley

is a manufacturing philosophy which shortens the time between the customer order and the product build / shipment by eliminating sources of waste.

Lean Manufacturing

Business as Usual

PRODUCTBUILT & SHIPPED

CUSTOMERORDER

Time

Waste

PRODUCTBUILT & SHIPPED

CUSTOMERORDER

Time (Shorter)

Waste

Lean Manufacturing

Page 60: IB 2.2 Silicon valley

Product Lead Time

Value Added Time is only a very small percentage of the Lead time.

Traditional Cost Savings focused on only Value Added Items.

LEAN FOCUSES ON NON-VALUE ADDING ITEMS.

TimeRawMaterial

FinishedParts

WaitingStagingTransportation Inventory Staging

= Value Added Time

= Non-Value Added Time (WASTE)

Machining AssemblyCasting

Page 61: IB 2.2 Silicon valley

Before Lean: Organization By Machine Type With Convoluted Flow No Organization and No Control

LATHELATHE

LATHELATHE

MILLMILL

MILLMILL

MILL

GRINDER GRINDERGRINDER

500pcs.

750pcs.

DRILL DRILLDRILL

250pcs.

PART FLOW

Page 62: IB 2.2 Silicon valley

Customer Plant

ABCDEFGH

NeededComponents + kanban

Empties + withdrawalkanban

PULLNew product

Empties +production kanban

Supplier Plant

Downstream processes withdraw what they need when they need it.

Preceding processes replenish what is taken away.

Page 63: IB 2.2 Silicon valley

Why Focus on Flow?• “If some problem occurs in one-piece-flow

manufacturing then the whole production line stops. In this sense it is a very bad system of manufacturing. But when production stops everyone is forced to solve the problem immediately. So team members have to think, and through thinking team members grow and become better team members and people.”

Teruyuki Minoura, former President, Toyota Motor

Manufacturing, North America

Page 64: IB 2.2 Silicon valley

Lean Tools to Support Flow

• 5S-Visual Workplace • Total Productive Maintenance• Quick Changeover• Standardized Work• Quality Methods

Page 65: IB 2.2 Silicon valley

Describe this area...

Page 66: IB 2.2 Silicon valley

Describe this area...

Page 67: IB 2.2 Silicon valley

What is TPM?

Total Productive Maintenance (TPM)

is Productive Maintenance with

EVERYONE’s participation

Maintenance=Teachers, Doctors of Equipment

Operators=Clean, inspect, routine repair

Page 68: IB 2.2 Silicon valley

Why Quick Change Over?

Time

Inve

ntor

y le

vel Average inventory levels

Difference in average inventory level with more changeovers

The more quickly we changeover, the more our inventory levels decrease. This helps accomplish our goal of waste elimination.

Change Over

Page 69: IB 2.2 Silicon valley

StandardizedWork Chart

Detail of each Process Step

Detail of the Elementsof each Process Step

Work Element Sheet Stack Chart(Yamazumi)

A Visual Tool for Balancing Processes

Takt90s

1 2 3 4 5Assembly Process #

Standard Work Tools

Page 70: IB 2.2 Silicon valley

Standardized tasks are the foundation for continuous improvement and employee empowerment

“Today’s standardization…is the necessary foundation on which tomorrow’s improvement will be based. If you think of “standardization” as the best you know today, but which is to be improved tomorrow-you get somewhere. But if you think of standards as confining, then progress stops.”

Henry Ford, Today and Tomorrow, 1926

Page 71: IB 2.2 Silicon valley

Philosophy(Long-term Thinking)

People and Partners(Respect, Challenge and Grow Them)

Process(Eliminate Waste)

ProblemSolving

(Continuous Improvement and Learning)

Base management decisions on a long-term philosophy, even at the expense of short-term financial goals

Grow leaders who live the philosophy Respect, develop and challenge your people

and teams Respect, challenge, and help your suppliers

Create process “flow” to surface problems Level out the workload (Heijunka) Stop when there is a quality problem (Jidoka) Use pull systems to avoid overproduction Standardize tasks for continuous

improvement Use visual control so no problems are hidden Use only reliable, thoroughly tested

technology

Continual organizational learning through Kaizen Go see for yourself to thoroughly understand the situation.

(Genchi Genbutsu) Make decisions slowly by consensus, thoroughly

considering all options; implement rapidly (Nemawashi)

“4 P” Model of the Toyota Way

The heart & soul ofThe Toyota Way

Page 72: IB 2.2 Silicon valley

People and PartnersRespect, Challenge, and Grow Them:

9. Grow leaders who thoroughly understand the work, live the philosophy, and teach it to others

10. Develop exceptional people and teams who follow your company’s philosophy

11. Respect your extended network of partners and suppliers by challenging them and helping them improve

Page 73: IB 2.2 Silicon valley

Station CStation A

Station BTraditional Western Team

One-Piece Flow Demands Team Work!

WorkcellToyota Way Team

Need help?

Need help?

X

xx x

xx

x

x

x

xx

x

xx

x

x

x

x

Page 74: IB 2.2 Silicon valley

Principle Five: Stop & Fix Problems Mr. Ohno used to say that no problem discovered

when stopping the line should wait longer than tomorrow morning to be fixed. Because when making a car every minute we know we will have the same problem again tomorrow.”

-Fujio Cho, President, Toyota Motor Corporation

Page 75: IB 2.2 Silicon valley

1 2 3

8

4

9

5

10 11

6 7

12 13 14STOP BUTTON(STOP THE L INE AUTHOR ITY)

STOP BUTTON(STOP THE L INE AUTHOR ITY)

AbnormalityStation 5

Team Leader

45

Page 76: IB 2.2 Silicon valley

Typical Toyota Organization to support Continuous ImprovementTypical Toyota Organization to support Continuous Improvement

Team Member

Team Leader

Group Leader

Asst. Manager

Manager

{ 5 - 8 }

{ 3 - 4 }

{ 5 - 8 }

{ 4 - 10 }

Source: Bill Costantino, former group leader, Toyota, Georgetown.

Team Size

Kaizen

Page 77: IB 2.2 Silicon valley

Step 1: PREPARE WORKER

Step 4: FOLLOW UP

Step 3: TRY OUT PERFORMANCE

Step 2: PRESENTOPERATION

Plan

DoCheck

Action

Major Steps

Key Points

Reasons

The Four Steps of TJI

Page 78: IB 2.2 Silicon valley

Bumper Trimming Job Breakdown Sheet

JOB BREAKDOWN SHEET Phil Turek Todd Chambers

DATE: 7/20/2006

AREA: Bumper molding JOB: Rear bumper molding operator - Trimming WRITTEN BY: Phil Turek

SAFETY: Injury avoidance, ergonomics, danger pointsQUALITY: Defect avoidance, check points, standardsTECHNIQUE: Efficient movement, special methodCOST: Proper use of materials

1. Hold flash straight up and tight 1. Makes trimming easier

2. Trim away from body and arm 2. Prevents injury- cuts

Trim flash ball on left side 3. Blade flush with top surface 3. Visible surface, flash line 1mm max.

1. Start on trim line- 1 mm variation 1. Visible surface- quality spec.

2. Blade must be perpindicular 2. Angled cut not acceptable

Trim left side core flash 3. Follow trim line- 1mm variation 3. Visible surface- quality spec.

4. Curving motion while trimming 4. Technique to make trimming easier

1. Hold gate up horizontally 1. Prevents twisting of bumper during cut

2. Rest blade on bumper edge horizontally 2. Helps make cut horizontal and straight

Trim gate flash 3. Angle knife handle back (blade is horizontal) 3. Cut is easier

4. One continuous movement 4. Stopping will cause a jagged cut

1. Hold flash straight up and tight 1. Makes trimming easier

2. Trim away from body and arm 2. Prevents injury- cuts

Trim flash ball on right side 3. Blade flush with top surface 3. Visible surface, flash line 1mm max.

1. Start on trim line- 1 mm variation 1. Visible surface- quality spec.

2. Blade must be perpindicular 2. Angled cut not acceptable

Trim right side core flash 3. Follow trim line- 1mm variation 3. Visible surface- quality spec.

4. Curving motion while trimming 4. Technique to make trimming easier

LEAN ASSOCIATES, INC. www.leanassociates.com

Team Leader Supervisor

MAJORSTEPS

Step # 1

Step # 2

Step # 4

Step # 5

KEYPOINTS

REASONS FOR KEYPOINTS

Step # 3

Page 79: IB 2.2 Silicon valley

Auditing Standardized Work

Page 80: IB 2.2 Silicon valley

Manager Level Focus on Shop Floor and Systems Improvement. Tools: Visual Factory & TBPT

TBP

Team Leader and Group Leader Manage Standardized Work, Process Improvement and Develop Problem

Solving Skills. Tools: FMDS, TBP & OJD

Team Member Focus on Fundamental Skills & Standardized Work

Tools: Skills Training, Job Instruction, Standardized Work and 5-S

General Manager and VP Level Concentrate on Business Planning and Policy Improvement. Tools: Hoshin Planning & TBP

Roles and Responsibilities

Page 81: IB 2.2 Silicon valley

Toyota Way Principles in 4P Model

The dynamic ofThe Toyota Way

Philosophy(Long-term Thinking)

People and Partners(Respect, Challenge and Grow Them)

Process(Eliminate Waste)

ProblemSolving

(Continuous Improvement and Learning)

Base management decisions on a long-term philosophy, even at the expense of short-term financial goals

Grow leaders who live the philosophy Respect, develop and challenge your people

and teams Respect, challenge, and help your suppliers

Create process “flow” to surface problems Level out the workload (Heijunka) Stop when there is a quality problem (Jidoka) Use pull systems to avoid overproduction Standardize tasks for continuous

improvement Use visual control so no problems are hidden Use only reliable, thoroughly tested

technology

Continual organizational learning through Kaizen Go see for yourself to thoroughly understand the situation.

(Genchi Genbutsu) Make decisions slowly by consensus, thoroughly

considering all options; implement rapidly (Nemawashi)

Page 82: IB 2.2 Silicon valley

Typical Improvement Opportunities Available

Page 83: IB 2.2 Silicon valley

Improvement Approaches of Typical Companies

Page 84: IB 2.2 Silicon valley

Toyota Leverages Opportunities at all Levels

Page 85: IB 2.2 Silicon valley

Principle TwelveGenchi Genbutsu

“Observe the production floor without preconceptions and with a blank mind. Repeat “why” five times to every matter.”

-Taiichi Ohno

Page 86: IB 2.2 Silicon valley

“No Problem” is problem

• Problems are opportunities to learn• Hiding problems undermines the system

Page 87: IB 2.2 Silicon valley

Learning from the Toyota Way

Page 88: IB 2.2 Silicon valley

Characteristics of Effective Lean Transformation• Top Down Directive that this is the new way.• Bottom-up involvement in concrete projects with

clear results.• Develop internal experts through learning by

doing.• Expert sensei to guide the process and teach.• Learning philosophy: every project, activity, is a

chance to learn.• Start with value stream transformation projects.• Build on successes to transform broader

organization and culture over time---YEARS!

Page 89: IB 2.2 Silicon valley

Why is this hard to do?• Traditional organizations in fire fighting mode • No clear vision of the future state• culture change is hard• Organizational change is disruptive

• Management has to change its role from managing from the office to deeply understanding processes!

Page 90: IB 2.2 Silicon valley

REVIEW

Page 91: IB 2.2 Silicon valley

RtB

Page 92: IB 2.2 Silicon valley

Offshoring

Page 93: IB 2.2 Silicon valley

The Steroids

Page 94: IB 2.2 Silicon valley

Cool Hunter

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Next

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• Forces• Cluster• Competencies

Page 98: IB 2.2 Silicon valley

Forces

Page 99: IB 2.2 Silicon valley

• Genzyme • Founded in 1981 • Scientists studying

genetically inherited enzyme diseases

• Global Market• Orphan Drugs

Page 100: IB 2.2 Silicon valley

Genzyme’s Focus on “Orphan Drugs”

Unusual strategy

Develop rare drugs diseases not “blockbuster” drugs.

Long development

Blockbuster drugsRevenues of $1 billion and sold to

millions

Page 101: IB 2.2 Silicon valley

Genzyme’s Focus on “Orphan Drugs”

Genzyme concentrated on the “orphan drug” market that had a market of only a few thousand

people

Requires smaller clinical trials, less advertising, smaller sales force, less

competitionInsurance companies would be

willing to cover the drugs due to the severity of the diseases and a

limited number of patients for the drug

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• In 1983, the FDA established the “Orphan Drug Act,” giving seven years market exclusivity to developers of drugs for rare (<200,000 patients) diseases.

• Also chose unusual strategy of doing its own manufacturing and sales rather than licensing to a large pharmaceutical company.

• Diversified into side businesses to fund its R&D• Chemical supplies• Genetic counseling • Diagnostic testing

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Genzyme’s Focus on “Orphan Drugs”

Went public in 1987, raising $27 million

First drug: Cerezyme4,500 patients

Yearly cost of $170,000 (annual revenue of

$800 million). drug is required to be

taken for the lifetime of the patient.

By 2006, Genzyme was the world’s third largest

biotech company proving that a profitable business could be built around small disease

populations

6-103

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Strategy for

International

Environment

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Foces

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Assessing the Firm’s Current Position

• Porter’s Five-Force Model • Whether a particular industry will be profitable • determine if an individual firm’s chances for

success via a vis its competitors

Page 107: IB 2.2 Silicon valley

Assessing the Firm’s Current Position

• Degree of existing rivalry. Determined by number of firms, relative size, degree of differentiation between firms, demand conditions, exit barriers (for firm to leave the market)

• Threat of potential entrants. Determined by attractiveness of industry, height of entry barriers (e.g., start-up costs, brand loyalty, regulation, etc.)

• Bargaining power of suppliers. Determined by number of suppliers and their degree of differentiation, the portion of a firm’s inputs obtained from a particular supplier, the portion of a supplier’s sales sold to a particular firm, switching costs, and potential for backward vertical integration - firm produce its own supplies

• Bargaining power of buyers. Determined by number of buyers, the firm’s degree of differentiation, the portion of a firm’s inputs sold to a particular buyer, the portion of a buyer’s purchases bought from a particular firm, switching costs, and potential for forward vertical integration - supplier enters firm’s business

• Threat of substitutes. Determined by number of potential substitutes, their closeness in function and relative price.

6-107

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GenzymeDegree

of existing rivalry. Threat

of potenti

al entrant

s.Bargaining

power of

suppliers.

Bargaining

power of

buyers.

Threat of

substitutes.

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Mitigating Circumstances

Chance Government

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Clusters

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Salmon

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Salmon in Chile

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Salmon Cluster

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Salmon ClusterFertilization &

incubationFreshwater breeding -

smelt fattening Infrastructure of cagesTanks & recirculation

systemsTransport servicesVaccines, antibiotics

and pharmaceuticalsFeed production

&supply

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Salmon Clusters

Fertilization and incubation of ovaFreshwater breeding - smolt fattening Infrastructure of cages and related services

(maintenance of nets)Tanks and recirculation systemsTransport services:Research and production of vaccines, antibiotics

and other pharmaceutical products:Feed production and supply

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Theory of Industry Clusters

Alfred Marshall

• Industries tend to cluster in distinct geographic districts, with individual cities specializing in production of narrowly related set of goods

Michae

l Porter

• Clusters, or critical masses of unusual competitive success in particular business areas, are a striking feature of virtually every national, regional, state, and even metropolitan economy, especially in more advanced nations

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What are Industry Clusters? (Porter)

• Geographic concentrations of competing, complementary, or interdependent firms

• Common needs for talent, technology, and infrastructure

• Dynamic, changing as the industries themselves or external conditions change

• Centered on firms that sell outside the local, state, national market

• Driving forces in a national, regional, state or metropolitan economy

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What are Industry Clusters? (Porter)

Porter Definition1. Geographic concentrations

2. Common needs3. Dynamic,

changing4. Sell outside the

local, state, national market

5. Driving forces economy

Chilean salmon1. .2. .3. .4. .5. .

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Competencies

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Competency

• “A bundle of skills and technologies (rather than a single discrete skill or technology) that enables a company to provide a particular benefit to customers” - Hamel and Prahalad 1994, p. 199.

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• It provides consumer benefits

• It is not easy for competitors to imitate

• It can be leveraged widely to many products and markets.

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Dunning–Kruger Effect

• People reach erroneous conclusions and make unfortunate choices but their incompetence robs them of the metacognative ability to realize it

• Illusory Superiority

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Core Competencies at FedEx

Bar-codetechnology

Wirelesscommunications

Networkmanagement

Linearprogramming

Logisticsmanagement

Packagetracking

Metacompetency

FedEx

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Levels of competition for competence

Develop and acquireconstituent skillsand technologies

Synthesizecore competencies

Maximizecore product share

Maximize end product share (own brand plus OEM)

Develop precision mechanics,fine optics, microelectronics,and electronic imaging

Bring competencies togetherto develop laser printer engines

Core product (engine) sold toHP, Apple, etc.

Canon printers and Canon partson competitors’ printers (own brand plus OEM)

Levels Canon

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Swatch

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Swatch Activity

1. Summarize2. Look at the three theories3. Brainstorm and try to make connections where

these theories apply and do not apply4. Criticize the choices made, and/or give

suggestions to the country

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Theories• CwC• RtB• International Product Life

Cycle Model• 11/9: the fall of the

Berlin Wall opening Windows

• 8/9: Netscape goes public

• Work flow software: • Forces• Cluster• Competencies• Open SOurce

• Dunning Kruger Effect• Uploading• Outsourcing• Offshoring• Supply-chaining• In-sourcing• In-forming• Steroids• Triple Convergence• Personalization• Strategic Alliance• democtatization

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Case Study

ONE

• What theory is demonstrated here?

TWO

• How does the theory explain or illustrate what is occurs in the case study?

THREE

• What suggestions would you have for the company/organization going forward?

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Psychographic Segmentation

• Divides a population into groups that have similar psychological characteristics, values, and lifestyles

• Lifestyle• people’s decisions about how to live their daily lives,

including family, job, social, and consumer activities• The most common method for developing

psychographic profiles of a population is to conduct a large-scale survey

• AIO statements• VALS and VALS 2

“Values and Lifestyles”

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Western Psychographic Segmentation

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Swatch: Psychographic Segmentation

• 6-10: Consider it "cool", because big kids have it (42% awareness!)

• 11 –15: ("teeny boppers") provides sense of identity • 11 –15: ("young rockers") high awareness, but represents

t.b. lifestyle • 11-15: ("students") Swatch too wild for them, but they

might buy it to fit in • 16 –22: ("rockers") like the price, but dislike the male model

geeks • 16 –22: ("preppies") prefer a dressier watch • 16- 22: ("trendies") hate it; "fast food of time pieces" (73%

wear no watch) • 22 –32: ("transitionaries") like its durability, disposability,

price • 22 –43: ("older casuals") watches used to tell time (4%

awareness!) • • 33-43: ("weekend hippies") teen image (high awareness,

but 43% have never seen a Swatch in real life

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Japan Psychographic Segmentation

• Integrators• Innovators/Adopters

• Display, daring, exciting• Rykoshiki

• Home, career, status• Traditional

• Traditional dress, customs, cooperative

• Pragmatics• Few commitments,

uninformed• Sustainers

• Lack money, education, sustain the past

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SwatchPositioning / Repositoning

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DiscussionHow do companies we have seen use psychographic segmentation in mix?Think: Swatch, Unilever, NIN

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Internationalization

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Strategies for Operations Abroad

• International

• Control remains predominately with HQ in home county• Low pressure for local responsiveness-high pressure cost

reductions • Multidomestic

• Customize operations and products to each local market• High local responsiveness-low pressure cost reductions

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Strategies for Operations Abroad

• Global

• Tendency to centralize main operational functions• Can mobilize world-wide resources• High cost reductions from economies of scale and

experience curve-low customization to national borders• Transnational

• Looking for ‘global learning’ from HQ to subsidiaries, in reverse and between subsidiaries

• Cost reductions and product differentiation

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Advantages and disadvantages of the four strategies

Page 139: IB 2.2 Silicon valley

DiscussionHow do Swatch and Unilever employ Global Strategies?

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Global Strategy

• To go global or not?• Compelling Reasons

• Diversity of earnings• Exposure to new and emerging markets• Experience curve and access to the most demanding customers

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Discussion1. Why do Unilever and Swatch enter

new markets? 2. How do Unilever and Unilever enter

the markets? 3. What is unique is unique or

different about their approach?

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Global Company (2SMCG)

• 1. Standard Products and Marketing Mix• Core product and minimum marketing adaptations • Economies of scale benefits• Segmentation cross national borders

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Global Company (2SMCG)

• 2. Sourcing all Assets on an Optimal Basis• Ability to source all assets in value chain in terms of availability or

cost-competitiveness• Importance of assets deployment

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Global Company (2SMCG)

• 3. Market Access in Line with Break-Even Volume• Size not as important as generation of sales to cover demands of

infrastructure and investment

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Global Company (2SMCG)

• 4. Contesting Assets• Ability to neutralize the assets and competencies of competitors

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Global Company (2SMCG)

• 5. Global Orientation of Functions• R&D, procurement, production, logistics, marketing, human

resources and finance functions internationalized organizational structure

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DiscussionTo what degree are Unilever and Swatch global companies?

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Discussion

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Entrepreneurship

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Entrepreneurs solve big problems

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Japan

Craftsmanship

Manufacturing Spirit

Craftsmanship

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Most difficult problems do not have obvious solutions

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–Vision–Determination–Resourcefulness–Creativity–Willingness to change

direction

EntrepreneursNecessary Traits

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Entrepreneurship creates positive change

Entrepreneurial Efforts

Employees Consumers Shareholders

Government

General Economy

• Great opportunities • Greater income

• New products, services

• Increased wealth

• Additional tax revenue• Reduction in social benefit need

• Secondary and tertiary creation of opportunities

Page 156: IB 2.2 Silicon valley

Three Forms of Entrepreneurship

Individual Micro & Small Enterprises

Large Markets

Types of Entrepreneurship

Entrepreneurship driven by instincts to survive • Vegetable vendor• Cattle rearing• Tea Stall

• The area of microfinance• Supported by small loans between USD $50 - $200• Debt structure; short payback period• Proven area for finance

Small to medium businesses with scope and employment• 5-100 employees • Relies on internal business sense to succeed

• Currently with limited financial support• Need USD $20K to $250K• Generally rely on personal funds, family, friends, and money lenders

Large businesses with large scope and employment• Typically run by highly educated managers• Exit markets well understood

• Significant conventional venture capital support• Need USD millions in equity•Primarily service export or urban focused• Proven area for finance

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Knowledge transfer

Idea incubation

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Entrepreneurial India

Institutes of national importance

(IITs, IIMs, NITs, AIIMS, IISc etc.)

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Look at Four

CIIE SINE

IIT Chenn

aiSID

Page 160: IB 2.2 Silicon valley

Entrepreneurial India- “Top Incubation Center”

1. Centre for Innovation, Incubation& Entrepreneurship (CIIE) - IIM AhmedabadSet up in 2001Since inception CIIE has 15-odd innovations grow out of

the incubation centre in varied technologies

2. Society for Innovation and Entrepreneurship (SINE)- IIT BombaySet up in 2004It currently has 16 companies under its incubation

programme

Page 161: IB 2.2 Silicon valley

Entrepreneurial India- “Top Incubation Center”

3. Cell for Tech Innovation, Development & entrepreneurship support- IIT ChennaiSet up in 2000Organises national level competitions, ‘Breakthrough’

(general business plan competition) and ‘Genesis’ (social entrepreneurship plan competition)

4. Society for Innovation and Development (SID) - IISc, BangaloreSet up in 2006The investigator is given a seed capital for Rs 20 lakh a

year for two years as soft loan for the approved plan

Page 162: IB 2.2 Silicon valley

Entrepreneurship Type Synergy w/ Rural and Semi Urban India

Individual / Microfinance •Flexible, meets local requirements•Demonstrated ability to scale numbers of individuals•Microfinance an established and growing industry

Micro and small enterprise / informal sources

•Can provide value added employment to multiple people

• Only need one entrepreneur for multiple increases in income

•Flexible – tailored to local market and infrastructure requirements

Large markets / mainstream venture capital

•Can mobilize Fund quickly•Brings most sophisticated business experience•Commercial venture capital entrenched in India

•Limit to impact •Skills of great entrepreneurs not dispersed to others•Diminishing returns with market saturation

•Hamstrung by lack of capital and business building support

•Scale requirements limit flexibility•Limited understanding of rural and semi-urban India•Rural and semi-urban India unlikely to be attractive currently

Dis-synergy w/ Rural and Semi Urban India

Micro and small enterprises are key, receive least support

Page 163: IB 2.2 Silicon valley

Entrepreneurial India- “Industry-Academia Interface”

• Cell for innovation management.

Biocon / Indian School of Biz (ISB)

• ‘HP innovate’ - recognise and reward outstanding creative ideas of young engineering graduates

Hewlett-Packard (HP) India

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Micro Credit

Page 165: IB 2.2 Silicon valley

The Traditional Microfinance Lending Process

Microfinance Institutions

Microfinance Institutions

EntrepreneursEntrepreneurs

Banks and NGOs

Banks and NGOs

• Microfinance institutions typically get the money that they lend, from banks or non-governmental organizations, or both

• This can be expensive, as it is often borrowed with interest

• There may also be difficult application procedures to access debt capital from non-governmental organizations

• Some organizations can even find themselves shut out due to the region they operate in, particularly post-conflict regions

• Restrictions that microfinance institutions face ultimately affect the entrepreneurs, who rely on microfinance institutions to serve them

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The Kiva Microfinance Lending Process

Microfinance Institutions

Microfinance Institutions

EntrepreneursEntrepreneurs

You!You!

With Kiva, you can be micro-lender

You can act as a banker and provide the funds to microfinance institutions that they then lend to entrepreneurs

Page 167: IB 2.2 Silicon valley

Kiva

• Kiva.org is a website which allows you to lend to an entrepreneur in the developing world who needs a loan

• Through Kiva, you loan as little as $25 to an entreprenuer at 0% interest

Page 168: IB 2.2 Silicon valley

• Browse• Loan requests are

funded within minutes

Page 169: IB 2.2 Silicon valley

Size of the loan and status

Size of the loan and status

Summary of the business

and loan, including when it is

expected to be paid back

Summary of the business

and loan, including when it is

expected to be paid back

Information on the

microfinance institution which is

managing the loan on the

ground

Information on the

microfinance institution which is

managing the loan on the

ground

Picture of the entrepreneurPicture of the entrepreneur

Description of the business and what the loan will be

used for

Description of the business and what the loan will be

used for

Page 170: IB 2.2 Silicon valley

The business page also shows you all of

the other people around the world

who are contributing to this loan

The business page also shows you all of

the other people around the world

who are contributing to this loan

Page 171: IB 2.2 Silicon valley

Kiva’s Microfinance Partners

NicaraguaHonduras

Togo

Senegal

Bulgaria

Gaza

Uganda

Kenya

Tanzania

Cambodia

Samoa

Mexico

Ecuador Nigeria

Ghana

Moldova

Mozambique

Ukraine

Afghanistan

Congo

Indonesia

Azerbaijan

Cameroon

Tajikistan

Bolivia

Haiti

Dominican Republic

Vietnam

Iraq

Kiva has 89 Microfinance Partners in 42 countries and is still growing

Paraguay

Pakistan

Peru

Mali

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172

Internet Lender Transparent (“I know where my money is going”)

Sustainable (“If repaid, I will re-lend to someone else”)

Affordable (“I only need $25 to change someone’s life”)

Unique (“I love microfinance and I want to participate”)

Microfinance Institution 0% interest USD debt capital

No liability: Client loss borne by Internet Lender

Flexible repayment terms

Exhibit your work to an international audience

Kiva Introduction:

What are Kiva’s benefits?

Page 173: IB 2.2 Silicon valley

Chavez and Entrepeneurship

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HAARP

Page 175: IB 2.2 Silicon valley

How

Page 176: IB 2.2 Silicon valley
Page 177: IB 2.2 Silicon valley

Silicon Valley

• Silicon Valley is a nickname for the southern part of the San Francisco Bay Area centered roughly on Sunnyvale. • coined by journalist Don C. Hoefler in 1971,

• It was named "Silicon" for the high concentration of semiconductor and computer related industry in the area, and "Valley" for the Santa Clara Valley.

• Fairchild Semiconductor really started and then fuelled it all

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Page 179: IB 2.2 Silicon valley

WWIIThe First Electronic War

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British and American Air War in Europe

• 28,000 Active Combat Planes40,000 planes lost or damaged beyond repair:18,000 American and 22,000 British79,265 Americans and 79,281 British killed

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The German Air Defense SystemThe Kammhuber Line

• Integrated Electronic air defense network• Covered France, the

Low Countries, and into northern Germany

• Protection from British/US bomber raids• Warn and Detect• Target and Aim• Destroy

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German Air Defense System

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Himmelbelt• Local Air Defense• Network• • Box ~30 x 20 miles• • Integrated network• of radars, flak,• fighters,• searchlights

• Radars fed Himmelbett centers

• • Operators worked from rows of

• seats in front of a huge screen

• • Fighters would fly orbits around

• a radio beacon• – fighter controller talked

it to the• vicinity of the target• • Fighters would turn on

its radar,• acquire the target, and

attack

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Flak Radar Controlled Anti Aircraft Guns

• 15,000 Flak Guns• 400,000 soldiers in flak batteries

• Radar-directed flak to 30,000’• Fused for time

• Fragmentation rounds• No Proximity Fuses

• 105 mm flak

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Two• The Electronic Shield • Electronic Warfare

Page 186: IB 2.2 Silicon valley

Harvard Radio Research Lab Signals Intelligence and Electronic Warfare

• Reduce losses to fighters and flak• Find/understand German Air Defense

• Electronic and Signals Intelligence

• Jam/confuse German Air Defense• Radar Order of Battle• Chaff• Jammers

• Top Secret 800 person lab

Page 187: IB 2.2 Silicon valley

ELINT Understand German Air Defense

• B-24J flights inside Germany to intercept German radar signals

• Fitted with receivers & displays• Wire and strip recorders

• Frequency, pulse rate, power, etc.• 50 MHz to 3 GHz

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Window/ChaffJam Wurzburg

• Strips of aluminum foil• 1/2 Wurzburg frequency

• 46,000 packets tossed out by hand• Each packet contained 2,000 strips• Automatic dispensers came later

• First used July 1943• Raid on Hamburg• Shut down German air defense

• Used 3/4’s of Aluminum Foil in the US

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Blind German Early Warning Radar

• Put Jammers on Airplanes• Carpet” AN/APT-2 Jammer

• Confuse Wurzburg radar• Shut down flak• Shut down GCI• 5 Watts

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Fred Terman

• Who Ran this Secret Lab and became

• the Father of Electronic Warfare?

• • Harvard Radio Research Lab

• – Separate from MIT's Radiation Laboratory

• – Ran all electronic warfare in WWII

• – 800 people• – 1941-1944• • Director: Fredrick

Terman - Stanford

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Fred Terman

• Stanford Professor of engineering 1926• encouraged his

students, William Hewlett and David Packard to start a company

• Dean of Engineering 1946

• Provost 1955

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Spook Entrepreneurship

Page 195: IB 2.2 Silicon valley

Terman Strategy

• Focus on microwaves and electronics• Not going to be left out of gov’t $’s this time

• Recruits 11 former members of RRL as faculty• Set up the Electronics Research Laboratory

(ERL)• “Basic” and Unclassified Research

• First Office of Naval Research (ONR) contract 1946

• By 1950 Stanford was the MIT of the West

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Korean WarSpook Work Comes to Stanford

• • Applied Electronics Laboratory (AEL)• – “Applied” and Classified Military programs• – Doubles the size of the electronics program• – Separate from the unclassified Electronics• Research Laboratory• – Made the university, for the first time, a full• partner in the military-industrial complex

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Cold War and Research

• The Cold War battlefield moves 500 miles east• Fear of a “nuclear Pearl Harbor”• Countermeasures, Elint and Sigint, become

critical• Stanford becomes a center of excellence for the

NSA,CIA, Navy, Air Force

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The Cold War is an Electronic War

Page 199: IB 2.2 Silicon valley

Stanford Helps Understand theElectronic Order of Battle

• Where are the Soviet radars?• Consumers; SAC, CIA.

• Details of the radars• NSA/CIA to contractors

• Periphery of Soviet Union known

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U-2 Sigint Platform (1956)Stanford and Silicon Valley

• System IV• 150 - 40,000 MHz• Stanford Electronics Laboratories• Ramo Woolridge

• E/F Band ELINT recorder (1956)• A Band ELINT recorder (1959)• E/F Band Jammer (1959)

• Granger Associates• Watkins Johnson• – QRC -192 Elint receiver• – 50 -14,000 MHz• Communications receiver• – 100-150 MHz/3 channel tape recorder

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Stanford Joins the “Black” World

• Electronics Research Laboratory• “Basic” and Unclassified Research

• Applied Electronics Laboratory (AEL)• “Applied” and Classified Military programs

• Merge and become the Systems Engineering• Lab (SEL) in 1955

• Same year Terman becomes Provost

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Terman Changes the Startup/University Rules

• Silicon Valley as We Know it Starts Here• Graduate students encouraged to start

companies• Professors encouraged to consult for

companies• Terman and other professors take board seats• Technology transfer/IP licensing easy• Getting out in the real world was good for

your academic career

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Stanford’s Role

• Interaction with industry (via legacy just discussed)

• Research funding and creativity

• Silicon Valley as a nearby planting ground for ideas

• Role of students as inventors, as disseminators, and as part of the workforce

• Encouraging entrepreneurship …

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Microwave Valley - Components

• Klystrons, Carcinotrons, & Traveling Wave Tubes

• Eitel-McCullough (1934)• Varian Associates (1948)• Litton Industries (1946)• Huggins Laboratories (1948)• Stewart Engineering (1952)• Watkins-Johnson (1957)• Microwave Electronics Co. (1959)

Page 207: IB 2.2 Silicon valley

1966

• Hewlett-Packard entered the general purpose computer business with its HP-2115 for computation, offering a computational power formerly found only in much larger computers. It supported a wide variety of languages, among them BASIC, ALGOL, and FORTRAN.

HP-2115

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Spook Innovation

Page 209: IB 2.2 Silicon valley

Radio Dishes Get Funded

• Attach ELINT receivers to Bell Labs

• 60’ radar antenna in New Jersey• Use “matched filter”

techniques• Developed at Stanford

• • Build steerable antenna at Sugar

• Grove Virginia• • Pay for and build

Stanford “Dish”• Hide relationships via

“cover agencies”

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Project Grab 1960-1962

• ELINT in Space• No more overflights• Collect radar emissions from• Soviet air defense radars• Built by the Naval Research Laboratory• Used by SAC for EOB then given to the NRO

Page 211: IB 2.2 Silicon valley

Microwave Valley - Systems

• Some Stanford Alum’s• Sylvania Electronics Defense Laboratory

(1953)• Countermeasures, search receivers, converters• Hired faculty as consultants, including Terman

• GE Microwave Laboratory (1956)• Granger Associates (1956)• Electronic Systems Laboratories (ESL) (1964)

• Sylvania EDL director William Perry founder

• Argosystems (1969)

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Terman and the Cold WarSilicon Valley’s 1st Engine of Entrepreneurship

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Valley Attracts Financial Attention1st West Coast IPO’s

• 1956 Varian• 1957 Hewlett Packard• 1958 Ampex

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The Rise of Risk Capital

• “The Group” 1950’s• • First Bay Area “Angels”• – Reid Dennis• – William Bryan• – William Edwards• – William K. Bowes• – Daniel McGanney• ~ 10 deals $75 -$300K

Page 216: IB 2.2 Silicon valley

Summary

• • Terman/Stanford/Government responsible for

• entrepreneurial culture of Silicon Valley• • Military primed the pump as a customer for

key• technologies• – Semiconductors, computers, Internet• – But very little technical cross pollination• • Venture Capital turned the valley to volume

corporate• and consumer applications

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Hewlett Packard and Wozniack

• Steven Paul Jobs, Stephen Gary Wozniak and Ronald Gerald Wayne founded Apple Computer.

• In 1976, Ronald Wayne resigns from Apple Computer with only a one time payment of $80.

• Hewlett Packard grants Gary Wozniak the permission to create the Apple I.

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Japan

Page 220: IB 2.2 Silicon valley

Rice Markets And Taxes

• Taxes• Jomen (fixed amount)

system• Stabilization

• Transport• Roads• Trade Routes• Sekisho (passport

Controls)• Trade Cartels• Futures markets

Page 221: IB 2.2 Silicon valley

Rich Merchants in Edo Period (Gosho)

Sumitomo

-16c Adopt Western copper refining, copper trade (Kyoto)-17c Move to Osaka-Besshi Copper Mine (under Bakufu’s commission)<Transition to Meiji>

Manager: Saihei Hirose-Avoiding gov’t confiscation-Introducing Western mining technology to renovate Besshi-Business diversification

MITSUI

-17c From Matsuzaka-Kimono trade & money exchange in Edo, Kyoto, Osaka – huge success<Transition to Meiji>

Manager: Rizaemon Minomura-Cope with bakufu policy to protect Mitsui business-Support and work with new government-Internal reform: from gosho to zaibatsu-1876 Establish Mitsui Bank & Mitsui Trading Company

Page 222: IB 2.2 Silicon valley

The Black Ships

Page 223: IB 2.2 Silicon valley

Negative Consequences

• Comprehensive commercial treaties

• treaties which the bakufu signed with the West were unequal treaties

• Japan had no right to decide tariffs (set at 5%)

• Japanese court could not judge foreign criminals in Japan.

• Japanese Indemnification for Political Problems

• Inflation: Samari Impoverished

• Arms

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Positive Consequences

• New ideas, technology, industry and systems

• Silk and tea suddenly found huge overseas markets.

• Western Goods• Yokohama

merchants

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Trade 1876-80

0% 20% 40% 60% 80% 100%

Export

Import

Silk Tea

Cottonyarn

Cottonfabrics

Woolengoods

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Japanese Respose

• Initially, avoid colonization by the West• Rapid modernization and Westernization• Become “first-class” nation on a par with West• Fukoku Kyohei ( 富国強兵 ) - Rich Country, Strong

MilitaryShokusan Kogyo (殖産興業) - Increase Products, Build Industries

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Konosuke Odaka: World of Craftsmen, World of Factories (NTT Publishing, 2000)

• In Japan’s early factories, traditional shokunin (craftsmen) and modern shokko (workers) coexisted.

• Craftsmen were proud, experienced and independent. They were the main force in initial technology absorption.

• Workers received scientific education and functioned within an organization. Their skills and knowledge were open, global and expandable.

• Over time, craftsmen were replaced by workers. Experience was not enough to deepen industrialization.

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Monozukuri (Manufacturing) Spirit

• Mono means “thing” and zukuri (tsukuri) means “making” in indigenous Japanese language.

• It describes sincere attitude toward production with pride, skill and dedication. It is a way of pursuing innovation and perfection, disregarding profit or balance sheet.

• Many of Japan’s excellent manufacturing firms were founded by engineers full of monozukuri spirit.

Sakichi Toyota1867-1930

Konosuke Matsushita1894-1989

Soichiro Honda1906-1991

Akio Morita (Sony’s co founder)1921-1999

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Four

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Steps to Managing Export Operations Step 1 -Segment World markets

Product Quality and Product feature segmentation

Factors influencing segmentation

▪ Purchasing power

▪ Consumer tastes

▪ Weather conditions

▪ Level and dispersion of wages and technical skills

Important factors in analysis

▪ Emerging demand met by innovations in product technology in one country that are mirrored in other countries

▪ Deregulation and restructuring of markets

▪ Government policies and programs

McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 4-2INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Steps to Managing Export Operations (contd..)Step 2 - Select an Entry Strategy to Promote

Sustainable Competitive Advantage

Standardized product to all markets

Product- Life cycle strategy

Localized market strategy

A combination of strategies can also be followed

Step 3 - Take a long-run Perspective

Initial costs must be viewed as investments

Returns on investments will not be immediate in export markets

McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 4-3INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Pricing in Export Markets Strategy 1 - Requiring prices in export markets that yield

higher returns than are available in domestic markets ▪ Based on the belief that export operations are more risky relative to domestic

sales - can result in uncompetitive prices.

Strategy 2- Pricing to yield similar returns in domestic and export markets

▪ Based on the viewpoint that export markets do not necessarily differ from domestic markets

Strategy 3 - Pricing to yield lower returns, or even losses, in export markets—at least in the short run

▪ Reflects an approach that views export markets as the potential growth markets of the future - firm vulnerable to antidumping action

Strategy 4 - Pricing to sell production in excess of the needs of the domestic market so long as these sales make a contribution to fixed overhead and profit

▪ View of export markets as a dumping ground for production in times of excess capacity - firms very vulnerable to anti-dumping actions

McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 4-4INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Stages of Export Market Involvement Stage 1 – Unplanned entry

Unsolicited order from abroad, overproduction, declining domestic sales, pressures, “follow the leader” behavior, government-sponsored trade fairs, and funded export missions

Stage 2 – Systematic evaluation of the impact of exports

Stage 3 - Exports become a major factor in the firm’s strategy and operations.

McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 4-5INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Trade Intermediaries Import Traders

For every export, there is an import

Pure importers are market connectors; they create value through linking producers abroad to buyers in the domestic market

Pure importers usually have an advantage such as knowledge of the domestic market and practices

Export Traders They are also market connectors

Their advantages lie in knowledge of markets in particular countries or in knowledge of worldwide markets for particular products.

Trading Houses Pure import operations and pure export operations are joined

together in the trading houses McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 4-6INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Vital Questions to be asked Does our product and firm have a sustainable

competitive advantage in export markets and, if so, why? What are the export markets and the segments of those

markets that will value our product sufficiently (relative to other competing products) to offset our costs of production and distribution?

Should the firm export a standard product with a standard marketing mix worldwide or should it tailor its products and marketing mix to individual export markets?

What natural and government-imposed trade barriers impede linking production in one country to purchase in another, and what factors might facilitate this linkage?

What are the most appropriate channels of distribution for our product to achieve our goals in export markets?

McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 4-7INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Present day export trade Tariff and nontariff barriers to trade have fallen

globally and free trade areas have developed.

Firms often now analyze trade opportunities on a regional, and sometimes even broader basis

Products are often not sent directly from one home production site to an export market abroad. Inputs are sourced in a number of countries and assembled in other countries, and the final product is sold in yet other countries

Trade intricately linked with foreign investment, joint ventures, licensing, franchising, contract production, and component sourcing

McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 4-8INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Countertrade A special form of exporting is countertrade, the linked

exchange of goods for goods in international trade

Countertrade covers - Barter ,Counterpurchase, Compensation or buyback, Production sharing, Industrial offsets, Switches, Unblocking funds and Debt for equity swaps

Can be complicated and costly to negotiate and execute

Important characteristics of countertrade contracts need to be attended to carefully by an exporter

Generally countertrade is an inefficient form of trade. It creates costs and risks for both importers and exporters

McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 4-9INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Major Project Development Importance and investment increased during the 1990s –likely to

continue to increase in the future. Generally for infrastructure development - electricity generation,

telecommunications, water and sewage treatment facilities, and even roads and ports.

Types of Major projects Turnkey projects

▪ Firm undertakes to construct a major project, then turns it over to its owners when it is in full operation

Build, operate, and transfer projects (BOT)

▪ Firms bid for the right to construct the project, the winning firm also operates the facility after it is completed.

▪ Ownership is limited to a certain time period, after which the project is transferred to another organization

Build, operate, and own projects (BOO)

▪ Firms bid for the right to construct the project.

▪ The winning firm also operates the facility after it is completed. .

McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 4-10INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Exports, Imports, and International Finance Important aspects for exporters/importers

Effect of the real exchange rate on competitive advantage,

Effect of variations in the nominal exchange rate on export and import profitability

▪ Pricing of the goods in the importers currency

▪ Countered by setting up currency hedge

▪ Use of forward contracts

Effect of trade on financing needs and sources

▪ Irrevocable letter of credit (LoC) used to overcome uncertainty

McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 4-11INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Six

Licensing

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What is Licensing? Licensing is a contractual arrangement whereby

the licensor (selling firm) allows its technology, patents, trademarks, designs, processes, know-how, intellectual property, or other proprietary advantages to be used for a fee by the licensee (buying firm).

It is a strategy for technology transfer. Franchising is an organizational form where the

franchisor of a service, trademarked product, or brand name allows the franchisee to use the same in return for a lump sum payment and/or royalty, while conforming to required standards of quality, service, and so forth.

© 2003 The McGraw-Hill Companies, Inc. All rights reserved.Beamish, Morrison, Inkpen and Rosenzweig

Page 244: IB 2.2 Silicon valley

When is Licensing employed? Used both in technology intensive and non

technology-intensive industries (eg. Computer software, food, sport teams, publishing)

A licensor lacks the capital knowledge of foreign markets required for exporting or FDI, but wants to earn additional profits with minimal commitment.

Host-country governments restrict imports or FDI, or both; or the risk of nationalization or foreign control is too great.

A firm wishes to test the potential for future direct investment.

The technology involved is not central to the licensor’s core business. Generally only peripheral technologies are licensed.

McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 6-3INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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When is Licensing employed? (contd..)• High prospects of technology “feedback” or “flowback”

• The licensor wishes to exploit its technology in secondary markets that may be too small to justify larger investments; the required economies of scale may not be attainable.

• The licensee is unlikely to become a future competitor.

• Rapid pace of technological change such that the licensor can remain technologically superior to the licensee. If the technology may become obsolete quickly, there is pressure to exploit it fully while the opportunity exists.

McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 6-4INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Licensing Related Issues• Risks

• Dissipation of proprietary advantage• Tarnishing of reputation due to lack of quality• Profits may not be maximized• Difficulty in enforcement of license terms

• Intellectual Property Rights • IP legislations nonexistent or not enforced• “Reluctant Licensing” – attempts to offset piracy

McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 6-5INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Licensing Related Issues (contd..)• Costs of Licensing

• Protection costs• License Agreement costs• Agreement Maintenance costs

• Unattractive markets for Licensing• Governmental regulatory schemes• Restrictions imposed on duration and exclusive rights to

territories• Foreign exchange controls and tax on royalty fees

McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 6-6INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Elements of License Agreement

• A clear and correct description of the parties to the agreement

• A preamble or recitals describing the parties, their reasons for entering into the arrangement, and their respective roles.

• A list of defined terms for the purposes of the particular contract to simplify this complex document and to eliminate ambiguity.

• A set of schedules, in an exhibit or appendix, where necessary, to segregate lengthy detailed descriptions of any kind.

• Explicit description of the grant that is fundamental to the agreement and the nature of the rights being granted to the licensee.

• Description of any geographical limitations on the licensee’s manufacturing, selling, or sublicensing activities.

McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 6-7INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Elements of License Agreement (contd..)•  A description of any exclusive rights to manufacture and

sell that may be granted including rights to sublicense.

• The terms relating to the duration of the agreement and its extension or review.

• Provisions for the granting of rights to downstream refinements or improvements made by the licensor in the future.

• Provisions for “technological flowback” agreements.

• Details regarding the royalties or periodic payments based on the use of licensed rights.

• Specification of minimum performance requirements and other protection clauses

McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 6-8INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Some Licensing Announcements• Starbucks, the U.S. coffee chain, hopes to have 500

branches in Asia by 2003 through licensing agreements• Licensed properties account for nearly half of the $4

billion in home decorating retail sales sold for the Halloween season.

• Palm makes new licensing deals with Intel, Motorola and Texas Instruments, to expand the Palm operating system into all kinds of mobile devices from handhelds to cell phones and perhaps even wristwatches.

• On June 26, 2001, hundreds of independent record companies in Britain and Europe signed a licensing agreement with Napster to immediately make thousands of tracks available to computer-users worldwide.

McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 6-9INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Eight

Strategy

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The Changing World• Globalization is the buzzword!

• Change in traditional approaches towards more innovative strategies

• Firms forced to trade off between globalization and localization

• Transformation is slow mainly due to anti-globalization protests and the Internet

McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 8-2INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Pressures towards Globalization• Broad factors making global competition possible

• Freer Trade• GATT, WTO agreements• Creation of free trade zones, regional trading blocks like EU,

ASEAN• Global financial services and capital markets

• Growth seen in FDIs• Growth of Overseas venture capitalists and trans-national

banks• Advances in communications technology

• Ease of organizational control• The Internet

• Facilitates ease of communication• CRM, EDI systems are now in place in many companies• Internet exchanges link buyers and sellers worldwide and

have opened up new markets

McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 8-3INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Pressures towards Globalization (contd..)

• Industry Specific Factors

• Universal customer needs

• Global customers

• Many MNCs sell to other MNCs and need to keep up with the international expansion of the customers

• Global competitors

• High investment intensity

• High investments required for R&D, advertising due to increased competition

• When investment intensity is high, many companies are eager to amortize expenses by selling products globally

• Pressures for cost reduction

• Economies of scale and learning are important in price-sensitive markets

McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 8-4INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Pressures towards Localization

• Country specific Factors

• Trade barriers

• Tariffs, subsidizing domestic production, voluntary export restrictions, competing technical standards

• Cultural differences

• Cultural and religious beliefs, purchasing power, weak enforcement of laws

• Nationalism

• The Internet

• Anti-globalization activism

McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 8-5INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Pressures towards Localization (contd..)

• MNC-Specific Pressures

• Organizational resistance to change

• Logistics limitations

• Management skills and competencies

McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 8-6INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Business Strategies

McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 8-7INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

Exhibit 8-1 Mapping Industries

Need for Local ResponsivenessLow High

HighSemiconductors

Watches

Civil Aircraft

Automobiles

Telecommunications

Aerospace

White Goods

Packaged Foods

Funeral HomesCement

Nee

d f

or

Ver

tica

l In

teg

rati

on

Global Industries

Multidomestic Industries

Regional Industries

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Key Recommendations for Managing the Formulation Process

• Invest Heavily in Data Collection

• Use multiple data sources, tap external sources and develop internal sources to overcome suspect data

• Determine the Potential for Critical Scale Economies

• Weigh the Value of other Globalization Benefits

• Rotate Country Managers More Frequently to Help Them Develop a Global Vision

• Be Prepared to Reassess your Performance Measurement System and Reward System

• Take a Balanced Approach

McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 8-8INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Twelve

Govt Relations

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Sources of Trade Regulation• GATT and WTO

• Set up to deal with tariffs and non tariff barriers to trade• Tokyo Round in mid 1970s

• Tariff barriers reduced significantly• Partial success with non-tariff barrier reduction mainly

due to complexity and sensitivity• Uruguay Round – 1986-1993

• Challenging problems addressed – technical barriers, trade in services, intellectual property rights, trade in technology etc.

• More member countries – 117• Problems of developing countries addressed

• WTO formed – meets every 2 years

McGraw-HillMcGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 12-2INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Trade Agreements and Associations• U.S. – Canada Free Trade Agreement

• Formed January 1988 – world’s largest free trade area

• Dispute resolution mechanisms established

• NAFTA formed with Mexican representatives

• Association of Southeast Asian Nations

• ASEAN formed August 1967 with 5 member states, presently has 10 members

• Regarded as a loose economic cooperation channel but expected to change, FTA with China expected

• Move towards ASEAN FTA

McGraw-HillMcGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 12-3INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Trade Agreements and Associations (contd..)• Asia-Pacific Economic Corporation

• APEC established 1989, presently has 21 members

• Primary vehicle for open trade and economic cooperation

• Agreement to develop free trade yet to be reached

• ANDEAN and MERCOSUR

• Composed of South American nations with an objective of setting a common external tariff

• European Union

• Slow process of European integration

• Founded on the principle of supranationality

McGraw-HillMcGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 12-4INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Opportunities and Threats

Threats Government Actions Opportunities

Increase costsReduce ROICompetitive disadvantageIncreased competitionCo-opt

RegulationTaxationExpenditurePrivatizationConsultation

Control competitionCompetitive advantageSubsidies, grants, customerLevel playing fieldInfluence policy

Exhibit 12- 1Opportunities and Threats from Government Actions

McGraw-HillMcGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 12-5INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Political Strategy• Essential for a firm to form and implement political

strategy• Formulation

• Objectives• Issues• Stakeholders (allies, opponents, targets)• Position/Case (“public interest”)

• Implementation • Timing• Techniques

• Direct (negotiate, litigate)• Indirect (advocacy advertising, political contributions)

• Vehicles (e.g. coalition, Government Relations department, consultants)

• Style (e.g., confrontation or conciliation)

McGraw-HillMcGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 12-6INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Impact of International Business-Government InteractionObjectives and Motivations of MNC-SOE Alliances and Acquisitions

• Objectives of MNCs• Increase profits, reduce potential risks and achieve economies of scale• Control/preempt competition, expand market share, achieve first mover

advantage• Obtain lower-cost production or distribution facilities• Develop or adapt technology jointly, obtain new labor or technology resources• Expand domestic sales through overseas operations• Obtain new labor or technology resources

• Objectives of SOEs or Privatized Enterprises• Ensure survival and financial viability• Gain competitiveness and become profitable• Acquire new technology and improve managerial competence

• Objectives of Governments• Generate public revenues from SOE sales• Reduce subsidies to loss making SOEs, foreign debts and public budget deficits• Strengthen private sector, increase national productivity and stimulate growth• Expand shareholding among citizens and reduce government role in economy

McGraw-HillMcGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 12-7INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Proactive Management of Relations

1“Government Policy as lever for global competitiveness” approach

Example: Porter’s home base/cluster concept

3Non-location bound firm specific characteristics in MNE government interactionExample: Use of strategic trade policy arguments to obtain government favors.

2“Good corporate citizen” approachGovernment policy not viewed as a major determinant of international competitiveness

4Location bound firm specific characteristics in MNE government interactionGovernment policy viewed as something which can be influenced through lobbying,i.e., a proactive strategy

McGraw-HillMcGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 12-8INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

MNE’s Perception of Government Policy

MN

E’s

ob

ject

ives

in B

usi

nes

s –

Go

vern

men

t In

tera

ctio

ns

To achieve Benefits ofintegration

To achieve Benefits ofNational

Responsiveness

Viewed as outside the InfluenceOf MNE Managers

Viewed as Potentially Influencedby MNE Managers

Exhibit 12-4MNE’s approach to Government Policy

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Bargaining Power• Discriminatory enforcement occurs due to

differing characteristics of subsidiaries – Bargaining Power

• Sources of Bargaining power for host country

• Growing capability to replace the MNE’s products

• Control over access to raw materials, labor and capital

• Sources of Bargaining power for MNE

• Vertical integration

McGraw-HillMcGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

Slide 12-9INTERNATIONAL MANAGEMENT 5/e Beamish, Morrison, Inkpen and Rosenzweig

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Lockout

• Acquiring Technology Cheaply.

• Innovating.• Selling Product

Below Cost.• Build market share.

• Adquiriendo Tecnología Barato.

• Innovación. • Venta Del Producto

Debajo Del Coste. • Cuota de mercado

de la estructura.

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Lockout Case: VCR• In the 1980s, Japan claimed

the global VCR market for itself by under-pricing potential competitors. They acquired a patent for the VCR process from an American company that couldn’t find a way to make a short-term profit on the VCR.

• Japanese companies then began selling VCRs below cost to build market share & soon were selling at such a high volume that their costs declined to a profitable level.

• Japanese economies of scale were so great that foreign competitors were locked out of the market.

• En los años 80, Japón demandó el mercado global del VCR para sí mismo por los competidores potenciales de debajo-tasacio'n. Adquirieron una patente para el proceso del VCR de una compañía americana que no podría encontrar una manera de hacer un beneficio a corto plazo en el VCR.

• Las compañías japonesas entonces comenzaron a vender VCRs debajo de coste para construir la cuota de mercado y pronto vendían en un tan alto volumen que sus costes declinaron a un nivel provechoso.

• Las economías japonesas de la escala eran tan grandes que los competidores extranjeros eran bloqueados fuera del mercado.

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Ch 1

Expanding Abroad: Motivations, means & Mentalities

INB / MGT 352 International Management

Spring 2008

Transnational Management, Text, Cases, and Readings in Cross-Border Management, Christopher Barlett, Sumantra Ghoshal & Palu Beamish, 5th Edition, 2008

Part 1: The Strategic Imperatives

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Definition of a Multinational Enterprise (MNE)• MNE have “substantial direct investment” in

foreign countries (1) and “actively” (not passively) manage and coordinate these offshore assets, and their operations as integral parts of the company, both strategically an organizationally.

• MNEs include ExxonMobil, Royal Dutch Shell, BP, Toyota, Ford, DaimlerChrysler, GE, Wal-Mart, GM, ChevronTexaco

• In addition, definition of MNEs includes Intel, Unilever, Samsung, Singapore Airlines, McKinsey & Co., and Starbucks

Note 1: These are not simply trading relationships of an import/export business.

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Explosive Growth (MNE)• Number of International Companies

• UNCTAD - United Nations agency in charge of all matters relating to FDI and international corporations.• 1995 – 45,000 parent companies with 280,000 foreign

affiliates ($7 trillion in sales)• 2004 – 70,000 parent companies with 690,000 foreign

affiliates ($19 trillion in sales)

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Economic Importance of MNEs• MNEs are equivalent in economic importance to

medium-sized economies of Chile, Hungary, or Pakistan

• MNEs have considerable influence• Employ high percentage of business graduates• Pose the most complex strategic and organizational

challenges for their managers

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Top 500 MNEs• 70% of world trade• 85% of world automobiles• 70% of computers • 35% of toothpaste• 65% of soft drinks

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Largest 100 MNE• In 2003, excluding banking and finance, the

largest 100 MNEs accounted for over• $ 8 Trillion in worldwide assets, of which • $4.0 trillion was located outside there respective home

countries.

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Motivations (the ‘Why’) of MNE Int’l Expansion• Traditional Motivations

• Securing key supplies (aluminum, rubber, oil, etc.)• Market-seeking behavior (Nestle, Bayer, Ford)• Access to low-cost factors of production (clothing,

electronics, household appliances, watches, • Emerging Motivations

• Scale economies • Economies of scale and scope• Economies of scope

• Ballooning R&D investments• Shortening product life cycles• Scanning and learning capability• Competitive positioning

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Motives to Go International

The Historically Indigenous Firm

Cost-ReductionMotives

StrategicMotives

Market-SeekingMotives

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Global Strategy: An Organizing Framework

Strategic Objectives

National Differences

Scale Economies

Scope Economies

Achieving efficiency in current operations

Benefiting from differences in factor costs – wages and cost of capital.

Expanding and exploiting potential scale economies in each activity.

Sharing investments and costs across products, markets, and businesses.

Managing risks Managing different kinds of risks arising from market or policy-induced changes in comparative advantage of different countries.

Balancing scale with strategic and operational flexibility.

Portfolio diversification of risks and creation of options and side-bets.

Innovation, learning, and adapting.

Learning from societal differences in organizational and managerial processes and systems.

Benefiting from experience – cost reduction and innovation.

Sharing learning across organizational components in different products, markets, or businesses.

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MNE Advantages Int’l Operations• Ensuring critical supplies• Entering new markets • Tapping low-cost factors of production• Leveraging their global information access• Capitalizing on competitive advantage of multiple

market positions• Use strength to play strategic game of “global

chess”

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International Mindsets• Specific pressures will affect competition in

industries and firms that cross national boundaries causing

• a “global orientation” that relies on coordination of worldwide activities to maximize the collective organization, and

• a “multidomestic orientation” that responds to individual country opportunities and constraints.

• Increasingly, there are pressures for international companies to be both globally efficient and locally responsive. These pressures derive from environmental changes such as new technologies, unanticipated competition, and the convergence of industry boundaries. In such situations, firms exhibit a “transnational mindset” to simultaneously gain efficiency and local market benefits.

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Assets, responsibilities decentralized

HQ

International mentality

Formal control systems

International Strategy

4-294

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International Strategy

4-295

Assets, responsibilities decentralized

International mentality

Formal control systems

HQ

• Main role is to support the domestic parent company in different ways, such as contributing incremental sales to domestic manufacturing operations

• Products developed for domestic market sold abroad

• Technology and other knowledge are transferred from parent company to overseas operators

• Offshore manufacturing represents a means to protect company’s home market

• Companies with this mentality regard themselves fundamentally as domestic with some foreign appendages

• Managers assigned to overseas operations are often domestic misfits who happen to know a foreign language or have previously lived abroad

• Decisions related to foreign operations tend to be made in an opportunistic or ad hoc manner

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An “International Business Strategy” Deploying Global Information Systems (GIS)

4-2964-296

International Strategy

International Strategy

International Diagram

GIS Deployment Strategy

Assets, responsibilities decentralized

International mentality

Formal control systems

HQ

Involves transferring knowledge and skills from the central headquarters to the foreign operations.

Businesses that follow an international strategy tend to have distributed GIS in which systems in the central headquarters are connected to those in the foreign operations.

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HQ

Financial reporting flows

Multinational Strategy

Loose controls; strategic decisions remote

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HQFinancial Reporting flows

Loose controls; strategic decisions remote

• A multinational strategic mentality develops as managers begin to recognize and emphasize the differences among national markets and operating environments

• Companies adopt a more flexible approach to their int’l operations by modifying their products, strategies, and even management practices country by country

• As they develop national companies that are increasingly sensitive and responsive to their local environments, these companies undertake a strategic approach that is literally multinational: Their worldwide strategy is built on a foundation of the multiple, nationally responsive strategies of the company’s worldwide subsidiaries.

Multinational Strategy

• Managers tend to be highly independent entrepreneurs, often nationals of the host country• Using their local market knowledge and the parent company’s willingness to invest in these

growing opportunities, these entrepreneurial country managers often can build significant local growth and considerable independence from headquarters

• Results in a very responsive marketing approaches in the different national markets, it also gives rise to an inefficient manufacturing infrastructure within the company

• Plants are built more to provide local marketing advantages or improve political relations than to maximize production efficiency

• Similarly, the proliferation of products designed to meet local needs contributes to a general loss of efficiency in design, production, logistics, distribution, and other functional tasks

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An “Multinational Strategy”Multinational Strategy

Businesses that follow a multinational strategy tend to have decentralized, or independent, information systems for their central headquarters and different

foreign operations.

Multinational Strategy

Multinational Diagram

Central home base; decentralized production, sales, marketing in other countries. The business allows its foreign operations to function largely independently.

GIS Deployment Strategy

HQFinancial Reporting flows

Loose controls; strategic decisions remote

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HQ

Tight controls; centrally driven strategy

One-way flows,goods, information,and resources

Global Strategy

4-300

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Global Business StrategiesGlobal Strategy

HQTight controls; centrally driven strategy

One-way flows,goods, information,and resources

• In an operating environment of improving transportation and communication facilities and falling trade barriers, some companies adopt a very different strategic approach for their int’l operations

• These companies think in terms of creating products for a world market and manufacturing them on a global scale in a few highly efficient plants, often at the corporate center

• Subscribe to Professor Levitt’s to make and sell “the same thing, the same way, everywhere”

• In an operating environment of improving transportation and communication facilities and falling trade barriers, some companies adopt a very different strategic approach for their int’l operations

• These companies think in terms of creating products for a world market and manufacturing them on a global scale in a few highly efficient plants, often at the corporate center

• The underlying assumption is that national tastes and preferences are more similar than different or that they can be made similar by providing customers with standardized products at adequate cost and with quality advantages over those national varieties they know

• Strategic approach requires considerably more central coordination and control than the others and is typically associated with an organizational structure in which various product or business managers have worldwide responsibility

• R&D and manufacturing activities are typically managed from headquarters, and most strategic decisions also take place at the center

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Global Strategy Example

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Global Business Strategies

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All use global information systems (GISs) in various ways …

4-303

Multinational Strategy

HQFinancial Reporting flows

Loose controls; strategic decisions remote

Transnational Strategy

International Strategy

Global Strategy

HQTight controls; centrally driven strategy

One-way flows,goods, information,and resources

Assets, responsibilities decentralized

International mentality

Formal control systems

HQ

Complex controls; high coordination skills,

Coordinated strategic decision process

Heavy flows;materials, peopleInformation &technology

Distributedcapabilities,resources &decision making

HQ

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A “MNE Business Strategy” Deploying Global Business Systems

The central headquarters coordinates the activities of the foreign operations closely.

4-304

All use global information systems (GISs) in various ways …

4-304

Global Strategy

Transnational StrategyGIS Deployment Strategy Business that follow the transnational strategy require complex, integrated GIS in which the central headquarters and all the foreign operations participate equally

Global Strategy Diagram

HQTight controls; centrally driven strategy

One-way flows,goods, information,and resources

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Transnational Strategy

Complex controls; high coordination skills, coordinated strategic decision process

Heavy flows;materials, peopleinformation, technology

Distributedcapabilities,resources &decision making

4-305

HQ

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Transnational Strategy

Complex controls; high coordination skills,

Coordinated strategic decision process

Heavy flows;materials, peopleInformation &technology

Distributedcapabilities,resources &decision making

HQ

• The emerging requirement is for companies to become more responsive to local markets and political needs and pressures to develop global-scale competitive efficiency

• Key activities and resources are neither centralized in the parent company nor so decentralized that each subsidiary can carry out its own tasks on a local-for-local basis

• Instead, the resources and activities are dispersed but specialized, to achieve efficiency and flexibility at the same time

• These dispersed resources are integrated into an interdependent network of worldwide operations

• Transnational mentality recognizes the importance of flexible and responsive country-level operations – hence a return of “national” into the terminology

• Compared to multinational approach, it provides for means to link and coordinate those operations to retain competitive efficetiveness and economic efficiency, as is indicated by the prefix “trans”

• The resulting need for intensive, organization-wide coordination and shared decision-making implies that this is a much more sophisticated and subtle approach to MNE management

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A “Transnational Business Strategy” Deploying Global Business Systems

Truly global firm; no national headquarters; value-added activities managed from global perspective; optimizes supply & demand, taking advantage of local competitive strengths

4-307

All use global information systems (GISs) in various ways …

4-307

Transnational Strategy

Transnational Strategy

Transnational DiagramComplex controls; high coordination skills,

Coordinated strategic decision process

Heavy flows;materials, peopleInformation &technology

Distributedcapabilities,resources &decision making

HQ

GIS Deployment StrategyBusiness that follow the transnational strategy require complex, integrated GIS in which the central headquarters and all the foreign operations participate equally

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Global “Chess” Between Large MNEs• Customers demand differentiation along with the

level of cost & quality typical of global products• Host governments have more aggressive

development & tax agendas• MNEs fight for flexibility to continuously change

product designs, sourcing, and pricing

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Multidomestic Strategy Example

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Chapter 2: Understanding the International Context

Responding to Conflicting Environmental Forces

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Three Conflicting Setsof External Demands

• Forces for cross-border integration and coordination

• Forces for national differentiation and responsiveness

• Forces for worldwide innovation and learning

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2-313

Forces for Global Integrationand Coordination

• Economies of Scale

• Economies of Scope

• Factor Costs

• Increasingly Liberalized Environment for Trade

• Expanding Spiral of Globalization

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Global Competitors as Change Agents

• For industry globalization to take place:• Underlying drivers (economies of scale and scope, etc.)

have to be in place• But always triggered by actions of one of two global

“change agents”

• Examples:• British Airways (airlines)• Starbucks (premium coffee shops)• ISS (cleaning services)

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Global Industries

To borrow from Shakespeare:

• Some industries are born global

• Some are made global

• Others have global-ness thrust upon them

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Forces for Local Responsiveness

• Cultural differences• Consumer tastes and preferences• Ways of doing business

• National infrastructure• Technical standards (e.g., voltage, TV broadcast, etc.)• Distribution channels (e.g., supermarkets vs. bazaars)

• Government demands• National laws and regulations• Host country pressures and demands

• Local competitors• Appeal to nationalism

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MNC-Host Government Relationship: A Study in Love/Hate

MNC

MNCMNC MNC

MNC MNC

Host Country Government

Sought for its capital, technology,

management

Accommodated for its contributions to local social

and economic needs

Courted for its global efficiency and world

market access

Feared for its power and independence

Disliked for its impact on society

Resented for the nation’s dependence on it

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Sources of Conflict

Motivators Strategic viability: global

competitiveness Operational viability: profit

Objectives Freedom to integrate

operations globally Ability to market and ability

to transfer resources freely across borders

Measures (primarily financial)

Profit ROI Market share

Motivators National independence:

social, economic, political International competitiveness

Objectives Protect national sovereignty

from external influence Capture global benefits of

export markets, efficient industrial base, leading edge technology

Measures (social/economic/political) Social cost/benefit Political return Industrial policy “fit”

MNC Host Government

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Sources of Power

No investment or exit option

Access to needed resource (capital, technology, etc…)

Willingness and ability to align with national priorities

Development of local support (shareholders, suppliers)

Position in global economy (market, scale, competitiveness)

Home country support

Legislative power: regulate operating and strategic decisions

Market power-government as a customer

Incentives, supports Attractiveness to

competitors Local operations linkage

to global position (“hostage”)

Shift in power after investment (“obsolescing bargain”)

MNC Host Government

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Recent Backlash against Globalization• Early 1990s: Global integration forces dominated

• Most host governments actively sought investment• Free Trade movement gathered pace

• Late 1990s: Highly visible backlash• Anti-globalization movement (Seattle, Genoa, etc…)• Many developing countries are highly sceptical of benefits

• Many MNEs currently rethinking their approach toward globalization• Need to better articulate benefits they bring

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Forces for Worldwide Innovationand Learning

• Increased need for rapid and coordinated worldwide innovation driven by:

• Shortening product life-cycles

• Increased cost of R&D

• Emergence of global technology standards

• Competitors’ ability to develop and diffuse innovation globally

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Responding to Diverse Forces Simultaneously

• Strength of forces vary by industry; three typical models

• Global industries (consumer electronics)

• Multinational industries (branded packaged goods)

• International industries (telecom)

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Global & National Forces: Industry Effect

Global Integration

National Responsiveness

Consumer Electronics

Telecom Switching

BrandedPackaged ProductsCement

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Transition to Transnationality

• By 1990s environmental forces undergoing change• New bases of competition emerging• New competitors rising on the basis of different competitive

capabilities

• Increasingly industries were becoming transnational• Companies needing to respond to all three diverse and

competing sets of forces: global integration, national responsiveness, and worldwide learning

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A Final Word: Risk of “Globalization Glaucoma”

• Blindness to everything but global forces• Short-sightedness to localizing forces

“As the 1990s were drawing to a close, the world had changed course, and Coca-Cola had not. We were operating as a big, slow, insulated, sometimes even insensitive “global” company; and we were doing it in an era when nimbleness, speed, transparency and local sensitivity had become absolutely essential.”

Douglas Daft, CEO, Coca-Cola, March 2000

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International investment agreements:key issues and features

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Topics for discussion

1. Definitions and scope2. Admission and establishment3. Four pillars of protection:

− Standards of treatment− Expropriation− Transfers− Settlement of disputes

4. Liberalisation through NT and MFN5. Transparency

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Definitions and Scope

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•Matter coverage: define those assets to which the treaty applies.

•Subject coverage: define those persons and legal entities to which the treaty applies.

•Geographical coverage: define the territory to which the treaty provisions apply.

•Temporal coverage: determine the date of entry into force of the IIA and its duration.

Scope of an IIA

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Definition of “investment”Depending on purpose of treaty, two main approaches:

A.     Open-ended asset-based definition : broad protection

Including usually:

Movable and immovable property Various types of interest in companies Claims to money and claims under a contract having

a financial value Intellectual Property Rights Business concessions, including natural resources

concessions

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Example of asset-based definition BIT Ethiopia – Sudan 2000 Art. 1 Definitions

For the purpose of this Agreement: a) "Investment" means every kind of asset invested by Investors of one

Contracting Party in the territory of the other Contracting Party, in accordance with the laws and regulations of the latter, and in particular, though not exclusively, includes:

(i) movable and immovable and any other rights such as mortgages, liens or pledges;

(ii) Shares, stocks and debentures of companies or interests in the property of such companies;

(iii) claims to money or to other assets or any performance having an economic value,

(iv) intellectual and industrial property rights, including rights with respect to copy rights, patents, trade marks, trade names, industrial designs, trade secrets, technical processes and know-how and goodwill;

(v) business concessions conferred by Law or under contract, including concessions to search for, cultivate, extract or exploit natural resource;

A change in the form in which assets or capitals have been invested or reinvested shall not affect their designation as "Investments" for the purpose of this Agreement.

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Definition of “investment”

B.     Alternative definitions:

Closed list definition (finite list)

Enterprise–based definition

Focus on the “business enterprise” or the “controlling interests in a business enterprise”. Includes the establishment or acquisition of a business enterprise, as well as a share in a business enterprise, which gives the investor control over the enterprise

Tautological definition

Definition of the term "investment" in economic terms. Covering every asset that an investor owns and controls, directly or indirectly, that has the characteristics of an investment. Approach complemented by explicit exclusion of several kind of assets

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Investment - key issues Claims of money: will all claims of money be covered? Even those

claims of money not related to FDI? What about payments derived from commercial transactions or from the sale of goods and services?

Debt instruments: will all debt instruments be covered? What about those debt instruments with short-term maturity? Should there be a minimum maturity term specified?

Intellectual property rights (IPRs): should a reference to a legal framework be included? Would only those IPRs provided in accordance to domestic legislation be considered an investment? Those IPRs existing pursuant international agreements?

State Contracts: need for special treatment in definitions or substantive parts of the agreement.

Exclusions: Public debt? Property acquired not for an economic activity (i.e. leisure houses)? Short term debt instruments?

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Definition of “investor”A. Natural persons

Criteria of nationality Criteria of domicile or residence

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Natural persons - exampleNationality criterion:

BIT China - Germany, 2003, Art. 1 Definitions 2. the term "investor" means (a) in respect of the Federal Republic of Germany: Germans within the meaning of the

Basic Law for the Federal Republic of Germany, (…) (b) in respect of the People’s Republic of China: natural persons who have the nationality

of the People’s Republic of China in accordance with its laws, (…)

BIT Uganda – Mozambique, Art. 1 Definitions

4. "investor" of a Contracting Party shall mean: a) any natural person who is a national of that Contracting Party in accordance with its

law…

Domicile or residence criterion: BIT Canada -Argentina, 1991, Article 1- Definitions

b) The term "investor" means (i) any natural person possessing the citizenship of or permanently residing in a Contracting Party in accordance with its

laws, (…) who makes the investment; (…).

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Definitions - investorB. Legal entities

Criteria to determine the nationality of the legal entity/investor:

Country of organization or incorporationCountry of seatOwnership and controlDenial of benefits clause: (deny treaty protection to

those companies that are controlled by investors of a non-Party (particularly with which the host country does not maintain diplomatic relations) and/or that have no substantial business activities in the territory of the party under whose laws it is constituted)

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Legal entities – example 1Criterion of the “seat”:

BIT China - Germany, 2003

Article 1: Definition 2. the term "investor" means (a) in respect of the Federal

Republic of Germany: any juridical person as well as any commercial or other company or association with or without legal personality having its seat in the territory of the Federal Republic of Germany, irrespective of whether or not its activities are directed at profit; (…).

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Legal entities – example 2Criterion of ownership or control: Andean Community - Decision 291 Regime for theCommon Treatment of Foreign Capital and Trademarks,Patents, Licensing Agreements and Royalties

Article 1: … Foreign Enterprise:

an enterprise incorporated or established in the recipient country, in which national investors own less than fifty one percent of the equity capital or, if more than that, in the judgment of the competent national agency that percentage is not reflected in the technical, financial, administrative and commercial management of the enterprise.

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Legal entities – example 3Example of combined criteria:

BIT China - Germany, 2003

Article 1: Definition 2. the term "investor" means (b) in respect of the People’sRepublic of China:

economic entities, including companies, corporations, associations, partnerships and other organizations,incorporated and constituted under the laws and regulations of and with their seats in the People’s Republic of China, irrespective of whether or not for profit and whether their liabilities are limited or not.

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Legal entity – example 4Extent of treaty protection:

US BIT Model, 2004

Article 17: Denial of Benefits 2. A Party may deny the benefits of this Treaty to an investor

of the other Party that is an enterprise of such other Party and to investments of that investor if the enterprise has no substantial business activities in the territory of the other Party and investors of a non-Party, or of the denying Party, own or control the enterprise.

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Admission and Establishment

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Admission of foreign investmentTraditionally, right of States to control and limit

addmission. Recent trend towards States deciding to limit this right.

Two approaches in IIAs:

Admission model: entry in accordance with laws and regulations of the host country: NO LIBERALIZATION

Pre-establishment model: right of establishment. National treatment at the pre-establishment stage (approach of western hemisphere, Japan, Korea): LIBERALIZATION : removal of barriers to access

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Admission modelHost country discretion: laws and

regulations relating to entry may change

Once admitted, foreign investment is granted NT and MFN

No exceptions in the treaty: no need.

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Australia – India BIT

1. Each Contracting Party shall encourage and promote favourable conditions for investors of the other Contracting Party to make investments in its territory. Each Contracting Party shall admit such investments in accordance with its laws and investment policies applicable from time to time.

Tanzania – Netherlands BIT (2001)

Art 2 Promotion and Protection of Investments

“Each Contracting Party shall within the framework of its laws and regulations, promote economic cooperation through the protection in its territory of investments of investors of the other Contracting party. Subject to its right to exercise powers conferred by its laws or regulations, each Contracting Party shall admit such investments.”

Examples of admission model:

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Pre-establishment modelNT and MFN at all stages of the investment,

including at the pre-establishment stage: ‘establishment, acquisition and expansion’.

Lists of exceptions: all countries have closed sectors or non conforming measures.

Mostly negative lists. Very few exceptions (TAFTA)

The commitment is made in the Treaty, the national laws must be in conformity with Treaty obligations.

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Establishment of investment Each contracting Party shall permit establishment of a new business enterprise or acquisition of an existing business enterprise or a share of such enterprise by investors or prospective investors of the other Contracting Party on a basis no less favorable than that which, in like circumstances, it permits such acquisition or establishment by: (a) investors or prospective investors of any third state; (b) its own investors or prospective investors.

Treatment of Established Investment  1. Each Contracting Party shall grant to investments and to returns of investors of the other Contracting Party treatment no less favourable than that which, in like circumstances, it grants to investments and returns of:  (a) investors of any third State; (b) its own investors. 

Each Contracting Party shall grant investors of the other Contracting Party, as regards the enjoyment, use, management, conduct, operation, expansion, and sale or other disposition of their investments or returns, treatment no less favourable than that which, in like circumstances, it

grants to: (a) investors of any third State; (b) its own investors.

Pre-establishment NT and MFN model

Canada-Lebanon BIT

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Fair and Equitable Treatment

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1. Fair and Equitable Treatment

Absolute standard (not relative)

3 approaches:

• Stand alone FET

• FET in accordance with the principles of international law

• FET combined with MFN/NT

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Dutch model BIT

“1. Each Contracting Party shall ensure fair and equitable treatment of the investments of nationals of the other Contracting Party and shall not impair, by unreasonable or discriminatory measures, the operation, management, maintenance, use, enjoyment or disposal thereof by those nationals. Each Contracting Party shall accord to such investments full physical security and protection. …”

Kenya – United Kingdom BIT (1999), Art. 2 Promotion and Protection of Investment

“(2) Investments of nationals or companies of each Contracting Party shall at all times be accorded fair and equitable treatment and shall enjoy full protection and security in the territory of the other Contracting Party. Neither Contracting Party shall in any way impair by unreasonable or discriminatory measures the management, maintenance, use, enjoyment or disposal of investments in its territory of nationals or companies of the other Contracting Party”

 

Fair and Equitable Treatment: examples

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Fair and Equitable Treatment: examples

Uganda – Eritrea BIT (2001), Article 3 Treatment of Investment

(1). Each Contracting Party shall in its territory accord to investments made by investors of the other Contracting Party fair and equitable treatment which in no case shall be less favourable than that accorded to its own investors or to investors of any third state, whichever is the more favourable from the point of view of the investors.

(2) Each Contracting Party shall in its territory accord investors of the other Contracting Party, as regards their management, maintenance, use, enjoyment or disposal of their investment, fair and equitable treatment which in no case shall be less favourable than that accorded to its own investors or to investors of any third State, whichever of these standards is the more favourable from the point of view of the investor.

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2. International Minimum Standard of Treatment

Content of the clause in US and Canadian treaties Clarification of the standard Explicit reference to international customary law (ICL)

Relationship with other standards Explicit clarification that the violation of any other obligation of the

agreement does not entail the violation of the minimum standard of treatment – Same issue for State Contracts.

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1. Each Party shall accord to covered investments treatment in accordance with customary international law, including fair and equitable treatment and full protection and security.  2. For greater certainty, paragraph 1 prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to covered investments. The concepts of “fair and equitable treatment” and “full protection and security” do not require treatment in addition to or beyond that which is required by that standard, and do not create additional substantive rights. The obligation in paragraph 1 to provide:  (a) “fair and equitable treatment” includes the obligation not to deny justice in criminal, civil, or administrative adjudicatory proceedings in accordance with the principle of due process embodied in the principal legal systems of the world; and (b) “full protection and security” requires each Party to provide the level of police protection required under customary international law.

3. A determination that there has been a breach of another provision of this Treaty, or of a separate international agreement, does not establish that there has been a breach of this Article.  

 

Fair and Equitable Treatment US model BIT(2004)

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Expropriation

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Expropriation protection

Content of the clause• Several categories of takings:

• expropriations,• nationalizations, • direct or indirect• Regulatory takings: measures tantamount to

expropriation• Creeping expropriations

Conditions for the expropriation to be lawful:Public purposeNon-discriminationDue process of lawCompensations

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Expropriation - compensation

Possible standards of compensation:

The Hull formula (prompt, adequate, effective)Appropriate compensationDifferent valuation methods: book-value method,

discounted cash-flow method,..

Expropriation and Regulatory Takings: Necessary clarification of the obligation

General exception: public health and safety.The right to regulate for public purpose.

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Expropriation protection: Uganda – Eritrea BIT (2001)

Article 4 Expropriation

(1) Investments of each Contracting Party shall not be nationalised, expropriated or subjected to measures having effect equivalent to nationalisation or expropriation (hereinafter referred to as ‘’expropriation’’) in the territory of the other Contracting Party except for expropriations made in the public interest, on a basis of non-discrimination, carried out under due process of law, and against prompt, adequate and effective compensation.

(2) Such compensation shall amount to the fair market value of the investment expropriated immediately before the expropriation or impending expropriation became known in such a way as to affect the value of the investment. The fair market value shall include but not exclusively the net asset value thereof as certified by an independent firm of auditors.

(3) Compensation shall be paid promptly and include interest at a commercial rate established on a market basis from the date of expropriation until the date of payment.

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Uganda – Eritrea BIT (2001) cont.

(4) The expropriated investor shall have a right to prompt review under the law of the Contracting Party making the expropriation, by a judicial or other competent and independent authority of the Contracting Party, of its case, of the value of investment, and of the payment of compensation, in accordance with the principles set out in paragraph 1 of this Article.

(5) When a Contracting Party expropriates the assets of a Company or an enterprise in its territory, which is incorporated or constituted under its law, and in which investors of other Contracting Party have an investment , including shareholding, the provisions of this Article shall apply to ensure prompt, adequate and effective compensation for those investors for any impairment or diminishment of the fair market value of such investment resulting from the expropriation.

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Transfers

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Free Transfer of Funds

Two types of transfers: inward and outward.ExceptionsBOP safeguards: temporary derogationsTransitional provisions: maintaining existing

restrictions.

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Free Transfer of Funds

South Africa – Mauritius BIT (1998) 1. Each Contracting Party shall allow investors of the other Contracting Party the free

transfer of payment relating to their investments and returns, which shall include in particular, though not exclusively -

(a) profits, capital gains, dividends, royalties, interest, and other current income accruing from any investment;

(b) the proceeds of the total or partial liquidation of any investment; (c) repayments made pursuant to a loan agreement in connection with investments; (d) licence fees in connection to matters in Article 1(1)(b); (e) payment in respect of technical assistance, technical services and management

fees; (f) payments in connection with contracting projects; (g) earnings of nationals of the other Contracting Party who work in connection with

an investment in the territory of the Contracting Party; (h) compensation paid pursuant to the provisions of Articles 4 and 5. 2. All transfers shall be effected without undue delay in any convertible currency at the

market rate of exchange applicable on the date of transfer. In the absence of a market for foreign exchange, the rate to be used will be the most recent exchange rate applied to inward investments or the most recent exchange rate for conversion of currencies into Special Drawing Rights, whichever is the more favourable to the investor.

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Dispute Settlement

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Two types of Dispute Settlement mechanisms

• State-to-State: applies only between State parties to the Agreement. (like the DSU in the WTO, the ASEAN DSB)

• Investor-to-State: allows private investors to submit claims against a host State to international arbitration

(eg. NAFTA and BITs)

• Most IIAs contain both types of mechanisms

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Investor-to-State mechanism

• Consultations and negotiations (time-period)• Most IIAs do not require exhaustion of local remedies• In some, resort to local courts precludes subsequent submission

to international arbitration: the fork in the road.• Direct resort to international arbitration (institutional or ad hoc): ICSID ConventionAd hoc arbitration following UNCITRAL Arbitration Rules

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Investor-to-State mechanism

• Constitution of tribunal (as per arbitral rules)• Applicable law: IIA’s provisions; law of the host-State;

investment contract, rules of international law.ICSID Convention (Article 42): absent agreement between

parties, the tribunal shall apply the law of the host State and the applicable rules of international law.

• Arbitral awards: final and binding, but require exequatur (except in the case of ICSID awards)ICSID Members shall recognize and enforce the awards in

their territory as if they were final judgements of a State court

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NT and MFN

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Non discrimination: NT and MFNNational treatment: grant foreign investors, in like

circumstances, treatment no less favourable than the treatment of nationals.

Most-favoured-nation treatment: treat all foreign investors alike. No discrimination among foreign investors on the basis of nationality.

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National Treatment

1. The application “de jure” and “de facto” of the standard

Most agreements do not specifically limit the scope of the national treatment standard only to a “de jure” test. Thus, jurisprudence has found that the standard applies both to “de jure” and “de facto” discrimination.

Approach may have a positive effect in fostering discipline in the domestic application of legislation

However, it is important to examine administrative practice and existing legislation that may have a “de facto” discriminatory impact on foreign investment.

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National Treatment

2. Treatment “in like circumstances”Comparison requires a comparator.

3. Best “in state treatment”

When negotiating with countries having federal systems of government, a situation may arise when one subnational unit discriminates among other subnational units from the same country.

Important to ensure that the National Treatment standard applies with respect to a regional level of government, treatment no less favourable than the most favorable treatment accorded, in like circumstances, by that regional level of government to investments or investors of the Party from which it forms a part. 

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National Treatment

4. Exceptions and reservations to national treatment

General exceptions based on reasons of public health, order and morals, and national security. Such exceptions are present in most regional and multilateral investment agreements, and also in a number of BITs.

Subject-specific exceptions which exempt specific issues from national treatment, such as intellectual property, taxation provisions in bilateral tax treaties, prudential measures in financial services or temporary macroeconomic safeguards.

Country-specific exceptions whereby a contracting party reserves the right to differentiate between domestic and foreign investors under its laws and regulations – in particular, those related to specific industries or activities – for reasons of national economic and social policy. Country-specific exceptions may overlap with subject-specific exceptions.

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MFN Treatment

Additional specific issues:

The Maffezzini jurisprudence and subsequent cases

Free rider issue: is there a free-rider problem in investment policy?

REIO and other exceptions: taxation, other investment agreements.

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Other Issues

Transparency

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Other issues• Governmental measures: home country measures, host

country operational measures (limitation to operations and performance requirements), incentives

• Entry and sejourn of key foreign personel• Transparency• Environment and labour • Implementation issues: ratification, entry into force,

enactment/implementation of treaty obligations into national legislation, management of investment disputes

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Competencies

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Competency• “A bundle of skills and technologies (rather than

a single discrete skill or technology) that enables a company to provide a particular benefit to customers” - Hamel and Prahalad 1994, p. 199.

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• It provides consumer benefits

• It is not easy for competitors to imitate

• It can be leveraged widely to many products and markets.

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Dunning–Kruger Effect• People reach erroneous conclusions and make

unfortunate choices but their incompetence robs them of the metacognative ability to realize it

• Illusory Superiority

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Consumers Perceptions

intrinsic value

perceived value

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Perceived

value driven

by context

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InnovationApp

leSt

yle

Sim

plic

tyFl

ow

Sam

sung

Col

or

Styl

e Fa

shio n

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What is Zara?

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Largest Pure Play Retailer

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Ortega

• Selling• Zara is not a style of

dressing as much as a style of buying, and hence, of selling.

• Producing• Zara-Inditex has

reinvented a form of producing

• Anti-Personalization• No cult of personality

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What is the entrepreneur?

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Groupwork

• Consider the following:

• “Everybody copies everybody, since the bottom line is that inspiration must come from the same source – society itself . . . Success emerges not so much from the ability to imagine creatively, but rather from managing to interpret trends present or observed in the community, and . . . , the ability to convert this into a physical item in just a few weeks”

• To what extend to you agree and disagree

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“To everything there is a season.”• Most firms design a

'collection' for an entire season. • Place a huge order for

stocking at the start of the season.

• What do you suppose are their lead-times from design to manufacture to store: days, weeks, or months? • Months• H&M is #2, it's 3-5

months from creation to delivery.

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If you get it wrong, you're hosed

Challenge

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Scale• How many new items Gap & H&M produce in a

season?• 2,000-4,000

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Testing

LogisticsProduction

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Jim Cramer: Fashion• Required Clothing• Reguiired accessory

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Culture of Permanent Testing

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Logistics

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• La Coruna warehouse is 5 million square feet = 90 football fields.

• Nine times the size of Amazon's warehouse

• Move about 2.5 million items a week.

• Connected to 14 Zara factories through tunnels with ceiling-mounted rails.

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Self-Start Production

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Fast Fashion!Cloth is ironed

Products packed on hangers -- no ironing

Price tags are affixed

Unpack them & they're ready to be sold

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Is Galacia Important?

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CwF + RtB

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Connect with Clients

CwC

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• Zara admits and is even proud of the fact that many of their creations are inspired by their own customers.

• Customer trends and preferences, along with their reactions to the products in the stores, are observed and communicated throughout the organization, almost in real time.

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Cool Hunter

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Intelligence

Mangaers

Staff Designers

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Managers• Zara’s store managers.

• Personal digital assistants (PDAs) • Gather customer input.

• Managers: 70 percent of salaries can come from commissions.

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The Store Staff

• As soon as the doors close, the staff turns into a sort of investigation unit in the forensics of trend spotting, looking for evidence in the piles of unsold items that customers tried on but didn’t buy. Are there any preferences in cloth, color, or styles offered among the products in stock?

• PDAs are also linked to the store’s point-of-sale (POS) system that captures customer purchase information. • In less than an hour, managers can send updates that

combine the hard data captured at the cash register with insights on what customers would like to see.

• All of this valuable data allows the firm to plan styles and issue rebuy orders based on feedback rather than hunches and guesswork. The goal is to improve the frequency and quality of decisions made by the design and planning teams.

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The Designers

• Data on what sells and what customers want to see goes directly to “The Cube” (central command of the Inditex Corporation outside La Coruña0), where teams of some three hundred designers crank out an astonishing thirty thousand items a year versus two to four thousand items offered up at big chains like H&M (the world’s third largest fashion retailer) and Gap• Individual bonuses are tied to the success of the team,

and teams are regularly rotated to cross-pollinate experience and encourage innovation.

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12 X Faster

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RtB

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• Mandatory feature of the Inditex management model: the replacement of stock at least twice a week

• Zara Tuesday• New Cool products

every tuesday

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ZARAZARA

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CreationZara

AcquisitionStratavatious,

Dutti

Strategic PartnershipProviders

FranchiseZara/ Bershka

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Market Entry Decisions

• Foreign Market Selection

• Timing & Order of Entry

• Market Expansion Strategies

• Mode of Entry Decisions

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Choice of Entry Modes

• Exporting• Direct vs Indirect

• Contractual Agreements• Licensing, Franchising, etc.

• Equity Based• Joint Ventures• WOS

• Strategic Alliance

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• Push• Encourage your position and current national

opportunities

• Pull• Attractive conditions and host mark

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Zara Internationalization

• But in general the choice was to move into a country on the basis of the idea that there was a market opportunity, a good location, or sometimes because a foreign party opened the track, sometimes making the offer of investment.

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Zara Expansion

• Reluctance and trial (1975 to 1988)• Started opening in Portugal

• Captious Expansion(1989 to 1986)• one or two similar socioeconomic countries per year to

market

• Aggressive expansion (1997 - 2005)

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Zara Entry Modes

• Subsidiaries • expensive mode of entry high growth potential business

risk countries IE EU

• Joint venture• large competitive markets

• Franchise• higher risk countries

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Strategic partnerships

• Zara is the only member of the group that’s sources all products from company plants

• Other members of the group relying on relationships outsourcing companies or individuals.

• Inditex sells the cloth and recives finished products

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Acquisition

• Dutti•Attempt to enter a different segment.

•Different management cultures. •Difficult transition.

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Acquisition

• Stradivarius. •Offensive acquisition. •Protect the Bershka. •Similar management cultures. •Easy integration.

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Zara International Marketing

• Ethnocentric Strategy• Geocentric Strategy

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Franchise

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Franchise

• Motivation• Conditions

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Internationalization

• But in general the choice was to move into a country on the basis of the idea that there was a market opportunity, a good location, or sometimes because a foreign party opened the track, sometimes making the offer of investment.

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HAARP

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Silicon Valley

• Silicon Valley is a nickname for the southern part of the San Francisco Bay Area centered roughly on Sunnyvale. • coined by journalist Don C. Hoefler in 1971,

• It was named "Silicon" for the high concentration of semiconductor and computer related industry in the area, and "Valley" for the Santa Clara Valley.

• Fairchild Semiconductor really started and then fuelled it all

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OneWWII The First Electronic War

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British and American Air War in Europe

• 28,000 Active Combat Planes40,000 planes lost or damaged beyond repair:18,000 American and 22,000 British79,265 Americans and 79,281 British killed

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The German Air Defense SystemThe Kammhuber Line

• Integrated Electronic air defense network• Covered France, the

Low Countries, and into northern Germany

• Protection from British/US bomber raids• Warn and Detect• Target and Aim• Destroy

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German Air Defense System

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Himmelbelt• Local Air Defense• Network• • Box ~30 x 20 miles• • Integrated network• of radars, flak,• fighters,• searchlights

• Radars fed Himmelbett centers

• • Operators worked from rows of

• seats in front of a huge screen

• • Fighters would fly orbits around

• a radio beacon• – fighter controller talked it

to the• vicinity of the target• • Fighters would turn on its

radar,• acquire the target, and

attack

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Flak Radar Controlled Anti Aircraft Guns

• 15,000 Flak Guns• 400,000 soldiers in flak batteries

• Radar-directed flak to 30,000’• Fused for time

• Fragmentation rounds• No Proximity Fuses

• 105 mm flak

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The Electronic Shield Electronic Warfare

Two

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Harvard Radio Research Lab Signals Intelligence and Electronic Warfare

• Reduce losses to fighters and flak• Find/understand German Air Defense

• Electronic and Signals Intelligence

• Jam/confuse German Air Defense• Radar Order of Battle• Chaff• Jammers

• Top Secret 800 person lab

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ELINT Understand German Air Defense

• B-24J flights inside Germany to intercept German radar signals

• Fitted with receivers & displays• Wire and strip recorders

• Frequency, pulse rate, power, etc.• 50 MHz to 3 GHz

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Window/ChaffJam Wurzburg• Strips of aluminum foil

• 1/2 Wurzburg frequency• 46,000 packets tossed out by hand

• Each packet contained 2,000 strips• Automatic dispensers came later

• First used July 1943• Raid on Hamburg• Shut down German air defense

• Used 3/4’s of Aluminum Foil in the US

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Blind German Early Warning Radar• Put Jammers on Airplanes• Carpet” AN/APT-2 Jammer

• Confuse Wurzburg radar• Shut down flak• Shut down GCI• 5 Watts

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Page 432: IB 2.2 Silicon valley

Fred Terman

• Who Ran this Secret Lab and became

• the Father of Electronic Warfare?

• • Harvard Radio Research Lab

• – Separate from MIT's Radiation Laboratory

• – Ran all electronic warfare in WWII

• – 800 people• – 1941-1944• • Director: Fredrick

Terman - Stanford

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Fred Terman

• Stanford Professor of engineering 1926• encouraged his

students, William Hewlett and David Packard to start a company

• Dean of Engineering 1946

• Provost 1955

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Spook Entrepreneurship

Page 436: IB 2.2 Silicon valley

Terman Strategy

• Focus on microwaves and electronics• Not going to be left out of gov’t $’s this time

• Recruits 11 former members of RRL as faculty• Set up the Electronics Research Laboratory

(ERL)• “Basic” and Unclassified Research

• First Office of Naval Research (ONR) contract 1946

• By 1950 Stanford was the MIT of the West

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Korean WarSpook Work Comes to Stanford• • Applied Electronics Laboratory (AEL)• – “Applied” and Classified Military programs• – Doubles the size of the electronics program• – Separate from the unclassified Electronics• Research Laboratory• – Made the university, for the first time, a full• partner in the military-industrial complex

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Cold War and Research• The Cold War battlefield moves 500 miles east• Fear of a “nuclear Pearl Harbor”• Countermeasures, Elint and Sigint, become critical• Stanford becomes a center of excellence for the

NSA,CIA, Navy, Air Force

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The Cold War is an Electronic War

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Stanford Helps Understand theElectronic Order of Battle• Where are the Soviet radars?

• Consumers; SAC, CIA.

• Details of the radars• NSA/CIA to contractors

• Periphery of Soviet Union known

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U-2 Sigint Platform (1956)Stanford and Silicon Valley• System IV

• 150 - 40,000 MHz• Stanford Electronics Laboratories• Ramo Woolridge

• E/F Band ELINT recorder (1956)• A Band ELINT recorder (1959)• E/F Band Jammer (1959)

• Granger Associates• Watkins Johnson• – QRC -192 Elint receiver• – 50 -14,000 MHz• Communications receiver• – 100-150 MHz/3 channel tape recorder

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Stanford Joins the “Black” World• Electronics Research Laboratory

• “Basic” and Unclassified Research

• Applied Electronics Laboratory (AEL)• “Applied” and Classified Military programs

• Merge and become the Systems Engineering• Lab (SEL) in 1955

• Same year Terman becomes Provost

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Terman Changes the Startup/University Rules

• Silicon Valley as We Know it Starts Here• Graduate students encouraged to start

companies• Professors encouraged to consult for

companies• Terman and other professors take board seats• Technology transfer/IP licensing easy• Getting out in the real world was good for your

academic career

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Stanford’s Role

• Interaction with industry (via legacy just discussed)

• Research funding and creativity

• Silicon Valley as a nearby planting ground for ideas

• Role of students as inventors, as disseminators, and as part of the workforce

• Encouraging entrepreneurship …

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Microwave Valley - Components

• Klystrons, Carcinotrons, & Traveling Wave Tubes

• Eitel-McCullough (1934)• Varian Associates (1948)• Litton Industries (1946)• Huggins Laboratories (1948)• Stewart Engineering (1952)• Watkins-Johnson (1957)• Microwave Electronics Co. (1959)

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1966

• Hewlett-Packard entered the general purpose computer business with its HP-2115 for computation, offering a computational power formerly found only in much larger computers. It supported a wide variety of languages, among them BASIC, ALGOL, and FORTRAN.

HP-2115

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Spook Innovation

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Radio Dishes Get Funded

• Attach ELINT receivers to Bell Labs

• 60’ radar antenna in New Jersey• Use “matched filter”

techniques• Developed at Stanford

• • Build steerable antenna at Sugar

• Grove Virginia• • Pay for and build

Stanford “Dish”• Hide relationships via

“cover agencies”

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Project Grab 1960-1962• ELINT in Space• No more overflights• Collect radar emissions from• Soviet air defense radars• Built by the Naval Research Laboratory• Used by SAC for EOB then given to the NRO

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Microwave Valley - Systems

• Some Stanford Alum’s• Sylvania Electronics Defense Laboratory

(1953)• Countermeasures, search receivers, converters• Hired faculty as consultants, including Terman

• GE Microwave Laboratory (1956)• Granger Associates (1956)• Electronic Systems Laboratories (ESL) (1964)

• Sylvania EDL director William Perry founder

• Argosystems (1969)

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Terman and the Cold WarSilicon Valley’s 1st Engine of Entrepreneurship

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Page 453: IB 2.2 Silicon valley

Valley Attracts Financial Attention1st West Coast IPO’s

• 1956 Varian• 1957 Hewlett Packard• 1958 Ampex

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The Rise of Risk Capital• “The Group” 1950’s• • First Bay Area “Angels”• – Reid Dennis• – William Bryan• – William Edwards• – William K. Bowes• – Daniel McGanney• ~ 10 deals $75 -$300K

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Summary

• • Terman/Stanford/Government responsible for

• entrepreneurial culture of Silicon Valley• • Military primed the pump as a customer for

key• technologies• – Semiconductors, computers, Internet• – But very little technical cross pollination• • Venture Capital turned the valley to volume

corporate• and consumer applications

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Page 457: IB 2.2 Silicon valley

Hewlett Packard and Wozniack

• Steven Paul Jobs, Stephen Gary Wozniak and Ronald Gerald Wayne founded Apple Computer.

• In 1976, Ronald Wayne resigns from Apple Computer with only a one time payment of $80.

• Hewlett Packard grants Gary Wozniak the permission to create the Apple I.