Instructor Manual
Chapter 11: Starting International Business
(Prepared by Klaus E. Meyer, March 2019)
Introduction to the Topic
Learning Objectives
1. Explain the different options for firms to start engaging in international business
2. Explain how firms develop resources for international business
3. Explain how institutions influence exporting behaviour
4. Participate in two leading debates on early stage internationalization
5. Draw implications for practice
General Teaching Suggestions
This chapter approaches international business strategy from the perspective of a small firm,
including entrepreneurial start-ups, that takes the first step of international businesses, and
engages – initially using non-equity modes. It explains critical concepts around non-equity
modes and the internationalization process. It thus lays the foundation for bigger international
business ventures in form of FDI, which are discussed in the next chapter. In the third edition,
we have added in particular new content related to e-businesses to lay foundations to discuss
if traditional models of international business are still applicable in the digital age (short
answer: to a large extend, yes).
This chapter should be of practical value to those who are currently entrepreneurs, those who plan to
be, and those who dream of being entrepreneurs. For those who have much different career plans,
point out that not all who become entrepreneurs do so early in their life. Some wait until they have the
savings needed to launch a venture. To initiate a discussion on this range of topics, you as
instructor may link into an entrepreneurship class or discussion the students may have had
elsewhere and ask “if you have a small firm with little experience, how do you sell your
products abroad?”
Opening Case Discussion Guide
This case tells the story of Spotify, a Swedish start up that become a global leader in music
streaming, and made its IPO in New York only 12 years after foundation. The main focus is
on the challenges of taking a digital business international, which relate not only to marketing
aspects but also to legal issues notably concerning copyright. The case complements the
Closing Case of Chapter 1, Airbnb.
To open a discussion on this case, instructors may ask: Have the rules of IB changed in the
digital age?
Chapter Outline, Section by Section
Section 1: Going International
Key Ideas
This section contains a wide range of concepts relating to transactions in international
business. We start with the practicalities of managing exports before introducing a wider
range of transactions. This part of the book is organized around Table 11.1, which differs
from conventional textbook treatments in two ways: Firstly, we treat goods and services
equally given the rising trade in international trade, and we look at the buyer’s (importer’s)
side as the inverse of the exporter. This leads to a wider range of options for businesses to
consider.
In addition to the first edition, we now introduce a ‘traders’ vocabulary’ (Table 11.2)
containing some of the terms that practitioners of international trade will frequently use, but
which scholars are often unaware of. Feedback from graduates suggested that this material is
important.
Key Concepts
small and medium-sized enterprises (SMEs)
Firms with fewer than 500 employees.
entrepreneur
Leader identifying opportunities and taking decisions to exploit them
entrepreneurial teams
A group of people jointly acting as entrepreneurs
exporter
Seller of products or services to another country
importer
Buyer of goods or services from another country
direct exports
The sale of products made by firms in their home country to customers in other countries.
FOB (free on board)
Contract clause: the seller has to deliver goods free on board of a ship or train.
CIF (costs of insurance and freight)
Contract clause: the seller has to pay all transportation costs to a destination port.
bill of lading (B/L)
Document certifying the delivery of the goods to a ship or train.
letter of credit (L/C)
A financial contract that states that the importer’s bank will pay a specific sum of money to the
exporter upon delivery of the merchandise.
indirect exports
A way for SMEs to reach overseas customers by exporting through domestic-based export
intermediaries.
export intermediary
A firm that performs an important “middleman” function by linking sellers and buyers overseas.
sales agent
An intermediary receiving commission for sales
distributor
An intermediary trading on their own account
cross-border services
Supplying services across national borders
servicing foreign residents
Supplying services to customers coming from abroad
licensing
Firm A’s agreement to give Firm B the rights to use A’s proprietary technology (such as a patent) or
trademark (such as a corporate logo) for a royalty fee paid to A by B.
licensor
The company granting a license
licensee
The company receiving a license
franchising
Firm A’s agreement to give Firm B the rights to use a package of A’s proprietary assets for a royalty
fee paid to A by B.
franchisor
The company granting a franchise
franchisee
The company receiving a franchise
turnkey project
A project in which clients pay contractors to design and construct new facilities and train personnel.
design and build (DB) contract
A contract combining the architectural or design work with the actual construction
build-operate-transfer (BOT)
A contract combining the construction and temporary operation of a project eventually to be transferred
to a new owner
consortium
A project based temporary business owned and managed jointly by several firms
tender
A competition for a major contract
subcontracting
A contract that involves outsourcing of an intermediate stage of a value chain,
R&D contract
A subcontracting of R&D between firms.
management contract
A contract over the management of assets or a firm owned by someone else
Section 2: Resources and Internationalization
Key Ideas
This section introduces the most popular European contribution to the IB literature, the
Internationalization Process (or Uppsala) model of internationalization. The discussion
embeds it in the contemporary literature that acknowledges that firms, while going through
learning processes, can build their resources much faster than two or three decades ago. This
provides a foundation for explaining the popular idea of entrepreneurial start-ups becoming
‘born global’. In staying with the central themes of the book, we embed this section in the
RBV by focusing on the resource development aspect of the IB model.
The new In Focus 11.3 adds the capital side to internationalization, exploring start-ups that
aim to raise capital abroad.
Key Concepts
experiential knowledge
Knowledge learned by engaging in the activity and context
Uppsala model
A model of internationalization processes focusing on learning processes
Network internationalization model
A model of internationalization that focuses on the international growth of business networks
stage models
Models depicting internationalization as a slow stage-by stage process an SME must go through.
born global (international new venture [INV])
Start-up companies that from inception, seeks to derive significant competitive advantages from the use of
resources and the sale of outputs in multiple countries.
mimetic behaviour
Imitating the behaviour of others as a means to reduce uncertainty
Section 3: Institutions and Internationalization
Key Ideas
This section focuses on two aspects of institutions relevant especially to companies with little
experience overseas. First, many countries support international business activities of their
companies, especially trade, by facilitating access to information of trade credit. Second, the
institutional and cultural distance – or the degree to which institutions / culture in the partner
country is different from what the entrepreneurs are familiar with – influences their ability to
cope with the institutional setting of the ‘other’ country.
Key Concepts
institutional distance
The extent of similarity or dissimilarity between the regulatory, normative, and cognitive institutions of
two countries.
cultural distance
The difference between two cultures along some identifiable dimensions (such as individualism).
Section 4: Debates and Extensions
Key Ideas
The first debate challenges students to think of entry modes in terms of designing the optimal
mode, as opposed to selecting a mode from a given set (such as Table 11.1).
The second debate concerns the opportunities that evolve for businesses in the digital
economy where many cost of doing business internationally are reduced, but new
coordination challenges arise.
Key Concepts
Foreign operation mode configuration
The full set of contracts and operations in a given location
e-businesses
Businesses that create and coordinate the value chain of their business online.
Section 5: Implications for Practice
Key Ideas
The concluding section focuses on the link between building resources and organizational
structures and the success for international business.
Key Concepts
No new concepts
Review Questions
Review questions are provided to students on the website accompanying the book. They
directly ask to summarize the material provided in the text. Instructors may also use the
questions to structure their lectures or review sessions.
Review Questions
(as provided to students on the website)
Material in the Book
1. What were the challenges that Spotify experienced in
establishing an international operation?
2. What are some of the challenges smaller and younger
firms face in setting-up and operating business abroad?
3. What are CIF, DDP, EXW and FOB?
4. How does a letter of credit (L/C) help exporters and
importers?
trade?
7. How can services be traded across borders?
8. What are licencing and franchising, and when can it be
used in international business?
9. How are turn-key projects and build-operate-transfer
project used in the construction industry?
10. How does the Uppsala model explain the process of
internationalization of firms?
Page 305-306
Page 306-307
Table 11.2
Page 309
Page 311-313
Page 313-314
Page 314-315
Page 316-317
11. How can ‘born global’ internationalize their operations
soon after their establishment?
12. How does the institutional environment of the home
country affect firms’ internationalization?
13. How does the ‘institutional distance’ between two
countries affect internationalization?
14. How do existing international operations affect future
internationalization?
15. How does the evolution of the digital economy affect
the way businesses engage in international business?
16. What are the main lessons entrepreneurs have to
remember when setting out to engage in international
business?
Page 318-320
Page 322-
Page326
Page 323
Page 323-325
Page 325-326
Critical Discussion Questions
At the end the chapter, we provide discussion questions that aim to stimulate students
thinking beyond memorizing the material learned in the chapter. They are designed to be
used at a basis for in-class discussions, group work, or individual assignments. Below,
provide some indicative answers of issues that may be raised in response to these questions.
Discussion Questions
(as provided in the book)
Indicative Responses
1. Some suggest that foreign markets are
graveyards for entrepreneurial firms to
overextend themselves. Others argue that
foreign markets represent the future for SMEs.
If you were the owner of a small, reasonably
profitable domestic firm, would you consider
expanding overseas? Why?
2. Your Kazakh classmate offers you 15%
commission if you sell hand-made,
fashionable clothing from Kazakhstan to local
These questions are about recognizing
and assessing business opportunities.
Students ability to demonstrate
strategic thinking is as important as
the conclusion eventually reached.
1. The key concepts here are risk and
return.
2. The key concern here is the
resources you need to put into this
potential of the business.
distributors in your home town. Would you
consider this offer?
3. Your company receives an enquiry by e-mail
from an unknown customer in Australia. The
customer asks for detailed information about
your latest high tech products, and envisages a
very large order. How do you react?
4. You have developed a mobile phone app that
helps people in hot climates to identify
climate-related risks, such as movements of
mosquito swarms. You live in cool Scotland.
How could you maximize sales from your
app?
3. The key concern is the handling of
confidential information. Keeping
things confidential is an essential
part of preventing imitation
(Chapter 4). Hence, it is advisable
to find out more about the
Australian business before
providing them with that
information.
4. The key challenge here is
accessing and integrating local
knowledge, both in the product
design but at least as important in
the development of the revenue
model.
Closing Case
The closing case provides further opportunities to apply ideas and concepts learned in this
chapter in a real world setting. The Closing Case for this Chapter is “3D printing changes
and that potentially can revolutionize manufacturing. At the early stage of technology
development, start-ups have developed a range of different business models aiming to take
printing technologies, what are the
main challenges in developing a
viable business model?
revenue stream beyond selling machines,
and to sell premium machines when
2. How can these business models be
rolled out internationally?
3. What are the implications of the
3D printing revolution for
production and supply chains of
traditional manufacturing
enterprises?
almost-free machines are available that
offer respectable quality.
2. Principally, new machines can be sold
relatively easily internationally, but the
protection of intellectual property will be a
concern.
3. Some aspects of traditional manufacturing,
especially small series with high degrees
of customization, are likely to be replaced
by additive manufacturing.
Further Learning Activities
In addition to the cases and discussion questions provided in the book, instructors may want
to use any of the following activities to further engage students with the material.
1. The Integrative Case “Xiaomi Challenges Global Leaders” has been written
specially to discuss the fast-paced development of firms in emerging economies
(which likely will surprise many students in Europe), and thus the rapidly evolving
role of emerging economies in the global economy (Chapter 1). The case also leads
into a discussion of the early stages of internationalization (Chapter 11, p. 323-326)
and of international business in the e-commerce area (Chapter 11, p.328).
2. The integrative case “Fan Milk in West Africa” has been designed primarily to
discuss different stages of entrepreneurial growth (Chapters 11, 12, 14): from an
entrepreneurial start-up by a Danish entrepreneur to a regional multinational
expanding to Nigeria and other West African countries, and eventually to a subsidiary
of French MNEs Danone who acquired Fan Milk. It can also be used in conjunction
with the Closing Case ‘Coca Cola Dives into Africa’ to discuss the evolution of
business opportunities in Africa (Chapter 1).
3. The Integrative Case “ESET: From Living Room to Global Player in Anti-virus
internationalization process model is still suitable to explain business growth in the
21st century. It also facilitates discussion of the specific challenges faced by
entrepreneurs in Central and Eastern Europe, and how they are impacted by EU
membership (Chapter 8).
4. The Integrative Case ‘McDonald’s Reinvents itself in India’ has been written to
discuss two fundamental challenges of foreign market entry: (1) how to adapt
products and processes to a local contexts, and (2) how to manage a partnership with a
local firm or entrepreneur. The case illustrates many good practices regarding
adaptation, perhaps surprising given McDonald’s image of a global brand. However,
it also highlights problems McDonald’s experienced in the relationship with one of its
local joint venture partners, a conflict that is still ongoing, and among other highlights
challenges of contract enforcement in a ‘weak’ institutional context. The case
discussion thus requires integrating learning from entry strategy (Chapters 11 and 12)
with operational strategy in logistics and marketing (Chapter 17).
5. You work for a small foreign language services company. You have been asked to present a
market assessment of the largest translation companies for competitor evaluation. Your report
must include the following attributes for the global industry: company, size, locations, and
ownership status. What do your findings suggest about possible worldwide opportunities?
One resource which can be used is “Common Sense Advisory: Top 20 Translation
Companies”. This website can be found by entering the search term “translation companies”
at the globalEDGE™ Resource Desk search box located at
http://globaledge.msu.edu/resourceDesk/. Once at the Common Sense Advisory website, the
table should be analyzed. Students may come to many different conclusions based on the
data.
Search Term: “translation companies” Resource Name: Common Sense Advisory: Top 20
Translation Companies
Website:
http://www.commonsenseadvisory.com/Research/All_Users/070502_Q_Top_20/tabid/1444/
Default.aspx
globalEDGE™ Tags: Industry Specific, Rankings
2. An entrepreneurship research firm has asked you to identify the most entrepreneurial
countries in the world. Based on your knowledge of the entrepreneurship field, find a
database that may assist in your research. Once the information has been secured, compare
the top five countries across the multiple years included in the database. Are there any
countries that appear in all years included in the database? What is the general percentage of
new start-ups in the overall economy for each of the top countries? Is the size of each country
similar? Explain these dynamics in your report.
One resource which can be used is “IFC SME Entrepreneurship Database”. This website can
be found by entering the search term “entrepreneurship” at the globalEDGE™ Resource Desk
search box located at http://globaledge.msu.edu/resourceDesk/. Once at the IFC SME
Entrepreneurship Database website, click on Entrepreneurship Database (located on the left
side of the screen). Students may come to many different conclusions based on the data
available.
Search Term: “entrepreneurship”
Resource Name: IFC SME Entrepreneurship Database
Website: http://www.ifc.org/ifcext/sme.nsf/Content/Entrepreneurship+Database
globalEDGE™ Tags: Global, Statistical Data Sources
Further Readings
At the end the chapter, suggested further readings are provided. The primary aim is to
provide students a starting point for further work, for example when preparing a class
assignment or dissertation. These references also are recommended for instructors not
familiar with the topic and wishing to ‘get ahead of the students’ before lecturing on a topic.
O. Andersen, 1993, On the internationalization process of the firm, JIBS, 24: 209-231 – A critical review
paper of the internationalization process literature.
K. Brouthers, K. Geisser & F. Rothlauf, 2015, Explaining the internationalization of ibusiness firms, JIBS,
47: 513–534. – a critical discussion of new international business models in the digital era.
M. Forsgren, 2002, The concept of learning in the Uppsala internationalization model: a critical review,
IBR, 11: 257-277 – A review of alternative ways of learning how to do international business.
J. Johansen & J.E. Vahlne, 2009, The Uppsala internationalization process model revisited: From liability
of foreignness to liability of outsidership, JIBS, 40, 1411-1431 – The fathers of the Uppsala model
review and extend the literature that builds on their original work published in 1977.
L. Welch, G. Benito & B. Petersen, 2007, Foreign Operation Methods, Cheltenham: Elgar – a specialized
textbook covering a wide range of modes with focus on non-equity modes.
S. Young, J. Hamill, C. Wheeler & J.R. Davies, 1989, lnternational Market Entry and Development:
Strategies and Management, Englewood Cliffs, NJ: Prentice Hall – an older book providing a very
concise treatment of alternative modes of foreign entry.