Internationalisation and M&A

Internationalisation and M&A - explained simply

What is module 5 about?

Last week was about corporate strategy: which businesses are you in? Now there is an extra question: in which countries are you active, and how do you get in? Lecturer Taco Reus asks four questions. Why do companies go abroad? How do they steer that? How do they enter a country? And what makes a foreign market hard?

Why do companies go international? The Yip drivers

George Yip names four internationalization drivers. Remember them as MCCG: Market, Cost, Competitive, Government.

• Market drivers. Are customers roughly the same in different countries? Then you can use the same marketing everywhere. Cars: yes. Dutch books: hardly. Uber suddenly made the local taxi industry international.
• Cost drivers. Scale economies, buying in bulk, cheaper capital, and global sourcing (looking for the best supplier worldwide).
• Competitive drivers. Coca-Cola and Pepsi watch each other everywhere. That is called multipoint competition. Firms also move to a cluster such as Silicon Valley (tech), London (finance) or Hollywood (film), to be close to the best customers, suppliers and knowledge.
• Government drivers. Trade agreements (EU, WTO) make doing business abroad easier. Tariffs and import restrictions make it more expensive. Internationalisation therefore comes in waves.

Every driver is dynamic: its strength differs per country and changes over time.

Two forces pulling at you

Internationally you always face a dilemma:

1. Pressure for global integration. You want scale advantages, so you standardise and steer centrally.
2. Pressure for local responsiveness. Customers, rules and local competitors differ, so you have to adapt.

Bartlett & Ghoshal put this in a square with four strategies:

Reus stresses that this is not a free choice. The boxes are stages: as markets mature and competition grows, both pressures rise at the same time. Transnational then becomes more of a necessity than a choice.

How do you enter a country? Entry mode

Johanson & Vahlne saw that companies internationalise gradually, first close to home and later further away. You start by exporting, then a sales rep, then a sales unit. After that comes direct investment. On the ladder from the slides: exporting, licensing, franchising, greenfield, (equity) joint venture, mergers & acquisitions.

For direct investment you have three options. Each has its own pros and cons:

• Buy (acquisition). Fast. If it goes wrong you can often sell the company again. Risk: culture and valuation. Tip: do not buy the whole company if you only need a part.
• Ally (alliance or joint venture). Fast, and you share the losses. Risk: culture and control problems and a learning race, where one partner learns from the other and then leaves. Only cooperate in the area where you really need the partner.
• Greenfield (do it yourself). Slow, and hard to sell if it fails. Advantage: your culture and structure stay consistent with headquarters.

The choice depends on urgency (how fast), uncertainty (how uncertain is the market) and the type of capabilities: soft capabilities (culture, management) are hard to integrate in an acquisition or alliance.

Why is abroad hard? Liabilities of foreignness and OLI

Liabilities of foreignness (LOF) are the extra costs a foreign firm has compared with local competitors: unfamiliarity with the context, discrimination and geopolitical tension with the home country. If you have those, you must be better at something. Otherwise you do not win.

Dunning’s OLI says which advantages must be large enough to offset the LOF:

• Ownership: firm-specific advantages, such as core competences and dynamic capabilities.
• Location: advantages of a place. Porter’s diamond explains why some countries are strong in a sector. The Netherlands, for example, has many cheese eaters and good cows.
• Internalization: the advantages of doing it yourself, to avoid transaction costs. This is where entry mode comes back.

Distance: the CAGE framework

Ghemawat says: distance still matters. He names four kinds: Cultural, Administrative (politics, laws), Geographic and Economic. The larger the distance, the riskier a market. A country that looks big can be much less attractive after correcting for distance. Reus puts the emphasis on Cultural and Administrative. Research on cultural distance gives no single answer: it can be a culture clash, but also cultural enrichment.

NUMMI: learning in an alliance

NUMMI was a joint venture of GM and Toyota in Fremont, California. GM brought the factory and the workers. Toyota brought the Toyota Production System. Toyota learned that the system also works with American workers. GM hardly learned to apply it in its own organisation. The lesson: knowledge you cannot write down (tacit knowledge) is hard to transfer, and your own culture can block learning.

Geopolitics

The international system has anarchy: no referee above the states. That does not mean chaos, but it does mean rules are fragile. There are two stable states:

• Conflict equilibrium: countries work against each other with tariffs and investment restrictions.
• Cooperative equilibrium: open markets and keeping agreements.

Geopolitics hits a firm at four points: market entry, investment security, equal treatment and institutional alignment. Sometimes the equilibrium suddenly shifts (disequilibrium) through shifts in power, nationalism or a different view on who is friend and who is foe. The example is ASML, which supplies chip machines and is caught by export restrictions between the US and China.

What do you take away?

Can you place a company in the Bartlett & Ghoshal square, compare Buy, Ally and Greenfield and link LOF to OLI? Then you are in good shape.

Internationalisation and M&A - exam level

Exam question types from the 2022 sample exam: name and explain a Yip driver (5p), choose a Bartlett & Ghoshal strategy with a short justification (5p, 20 words), name two advantages of an acquisition over greenfield (5p, 40 words). Write full sentences and use the English technical terms.

Yip’s internationalization drivers

Definition. Yip distinguishes four groups of factors that determine how strong the incentive to internationalise is.

Use the full names: market drivers, cost drivers, competitive drivers and government drivers.

Applying. Decide per driver whether it is strong or weak for the sector and per country. A strong driver means more reason to internationalise. Every driver is dynamic: internationalisation comes in waves, especially for the government driver.

Pitfall. If a question asks for “a driver”, name one, explain it and link it to the case. Only naming it is too little.

Link. These are the international counterparts of the diversification drivers from module 4.

Bartlett & Ghoshal (global integration versus local responsiveness)

Definition. Companies determine their strategy as the outcome of the tension between pressures for global integration (scale, central steering) and pressures for local responsiveness (local tastes, rules, competitors).

Applying. First establish how high the two pressures are and name the reason from the case. Then choose the strategy and give one justification. Example from the 2022 marking scheme: a media company with high pressure for global integration and for local responsiveness fits transnational (5p). Another strategy with a good justification earns partial points (3p).

Pitfall. The four boxes are not a free choice but stages in a development path under increasing competitive pressure. Transnational is increasingly a necessity. The book (Figure 8.4) uses the names export strategy, multi-domestic, global and transnational, and calls transnational complex to implement.

Link. The chosen international strategy partly determines the structure in module 6 (divisional or matrix with internationalisation).

Entry and expansion modes (Johanson & Vahlne)

Definition. Johanson & Vahlne (internationalization theory): firms internationalise gradually, first to nearby countries, with increasing commitment: exporting, licensing, franchising, sales rep, sales unit and then direct investment.

Three forms of direct investment (module overview and slides 20-21):

Choice factors (book section 8.8): urgency, uncertainty and the type of capabilities you combine. High urgency and uncertainty point to Buy or Ally. Soft capabilities (culture, management) are hard to integrate; with Buy and Ally the biggest problems arise there.

Pitfall. For “advantages of acquisition over greenfield” say: faster, and easier to sell on if it fails. Do not just write “cheaper”, because that is not proven.

Link. Coase’s transaction cost thinking (module 4) sits in the Internalization component of OLI.

Liabilities of foreignness and Dunning’s OLI

Definition LOF. The extra costs a foreign firm has compared with local competitors: unfamiliarity with the context, discrimination against foreigners and a geopolitical home front.

OLI explains which advantages must be large enough to offset the LOF:

• Ownership: firm-specific factors such as competitive advantages, core competences and dynamic capabilities (module 3: VRIO).
• Location: location-specific factors, with Porter’s diamond (factor conditions, demand conditions, related and supporting industries, firm strategy structure and rivalry).
• Internalization: integration advantages and avoiding transaction costs on the market. This determines the entry mode.

Applying. Ask: does the firm have an ownership advantage that works in the host country, is the location suitable, and is it better to do it yourself than via the market? Imitating local firms does not work without an ownership advantage.

Pitfall. Internalization is not the same as internationalization.

Porter’s diamond

Four factors explain why certain countries are strong in a sector: factor conditions, demand conditions, related and supporting industries and firm strategy, structure and rivalry. Example from the lecture: the Dutch dairy sector and bull semen. The book and the worksheet add government and chance as additional influences.

CAGE framework (Ghemawat)

Distance affects sectors differently. Ghemawat’s fast-food example shows that the ranking of countries changes once you include distance (country portfolio analysis). Reus names Cultural and Administrative as the most important. Research on cultural distance: culture clash (negative), cultural enrichment (positive), cultural complementarity, cultural adaptation, or insignificant (“it depends”). Moderators are experience, openness of the country and industry.

Pitfall. CAGE measures distance between two countries, not the quality of a country.

Alliance between rivals: NUMMI

GM and Toyota set up an equity joint venture in Fremont in 1984. GM’s contribution: factory, workers, union agreement, distribution, brand (explicit resources). Toyota’s contribution: the Toyota Production System, managers and product design (tacit, systemic knowledge). Toyota learned that TPS works in the US and so reduced its LOF (the next factory came in Kentucky). GM hardly learned, because of not-invented-here, an island structure, missing absorptive capacity and its own culture. This is an example of a learning race.

Geopolitics (Blake, Jandhyala and Li, 2026)

• Anarchy: no supranational authority. It is a football match without a referee, not chaos.
• Security dilemma: one state’s security measure makes another state feel less secure.
• Conflict equilibrium versus cooperative equilibrium: stable, self-reinforcing state of mutual defection (tariffs, investment restrictions, breaking agreements) or cooperation (open markets, keeping agreements).
• State-based versus market-based economic order.
• Four consequences for MNEs: market entry, investment security, equal treatment (national treatment, MFN) and institutional alignment.
• Disequilibrium through redistribution of power, domestic politics (nationalism, populism) and changing shared beliefs and identities.

Applying. ASML: export restrictions on chip machines in a conflict equilibrium between the US and China, with 15 percent of revenue in China and a chokepoint position.

Pitfall. Geopolitics is not a one-off disaster, it is a structural factor in international strategy (administrative distance in CAGE).

Internationalisation and M&A - as the lecturer says it

The lecturer of module 5 is Taco Reus. The quotes come from his video lectures and from College 5. They stay in Dutch, exactly as spoken, and each has an English note. The transcripts are automatic, so errors in words and names (such as “Walne” for Vahlne) are kept literally. The lecture itself contains no explicit exam hint. What he repeats often and what is on the slides is therefore the best signal, together with questions 5 and 6 of the 2022 sample exam.

Yip drivers: four kinds of drivers

Gezegd door Taco Reus in Video 5.1, minuut 00:00:

Hij gaf aan dat er vier soorten drijfveren zijn om te internationaliseren. Vanuit de markt, de kosten, de concurrentie en de overheid.

In English: four kinds of drivers, from the market, costs, competition and government. This is the fixed list for the question “name a driver”. In the sample exam (question 5a) you got 5 points for one driver with explanation.

Gezegd door Taco Reus in Video 5.1, minuut 01:03:

Soms veranderen industrieën ook in de mate waarin ze internationaal zijn. De taxi-industrie was voornamelijk heel lokaal. Maar met de komst van Uber werd deze industrie in heel korte tijd opeens veel internationaler.

In English: the taxi industry was local, but Uber made it international quickly. A usable example of a market driver that changes.

Gezegd door Taco Reus in Video 5.1, minuut 03:09:

Dat is de situatie waarin bedrijven gelijktijdig concurreren in meerdere producten of markten tegelijkertijd.

In English: his definition of multipoint competition (Coca-Cola and Pepsi).

Gezegd door Taco Reus in Video 5.1, minuut 05:15:

Internationalisering komt in golven.

In English: internationalisation comes in waves.

Gezegd door Taco Reus in Video 5.1, minuut 06:16:

Elke drijfver is dynamisch. Bedrijven moeten voortdurend in de gaten houden hoe de kracht van deze factoren verschilt per land en verandert in de tijd.

In English: every driver is dynamic. In a case question, do not only say which driver there is, but also that it can differ per country and over time.

Bartlett & Ghoshal: integration versus local adaptation

Gezegd door Taco Reus in Video 5.2, minuut 00:00:

Als de druk om wereldwijd te integreren groter is, wordt het belangrijker dat de strategie centraal bepaald wordt.

In English: the stronger the pull towards worldwide integration, the more the strategy is set centrally.

Gezegd door Taco Reus in Video 5.2, minuut 01:04:

Het is vrijwel per definitie een tijdelijke fase in de vroege fase van internationalisering.

In English: this is about the international strategy (low pressure on both axes), with Xerox as example. It is a temporary phase.

Gezegd door Taco Reus in Video 5.2, minuut 02:43:

Als bedrijven hoge druk ervaren voor wereldwijde integratie en weinig druk voor lokale of regionale aanpassingen, zijn bedrijven het meest gebaat bij een global strategy.

In English: high integration pressure and low local pressure fit a global strategy.

Gezegd door Taco Reus in Video 5.2, minuut 02:43:

Bedrijven met een multi-domestic strategie hebben vaak een country manager die behoorlijk autonoom werkt.

In English: a multi-domestic strategy typically has fairly autonomous country managers.

Gezegd door Taco Reus in Video 5.2, minuut 05:37:

Goed om te beseffen dat de vier kwadranten niet vaak een vrije keuze kunnen bieden, maar stadia in een ontwikkelpad onder toenemende concurrentiedruk.

In English: his own addition. The model is not a menu. It is a development path in which transnational becomes more and more important.

Gezegd door Taco Reus in Video 5.2, minuut 05:37:

Het model beschrijft dus minder vier soorten bedrijven en meer de levenscyclus van internationale concurrentie.

In English: the model describes less four kinds of companies and more the life cycle of international competition.

Entry mode: Buy, Ally and Greenfield

Gezegd door Taco Reus in Video 5.3, minuut 00:00:

Johansson en Walne waren een van de eersten die uitgebreid het internationaliseringsproces van bedrijven bestudeerden. Zij zagen dat het bij de meesten een gradueel proces is

In English: Johanson and Vahlne (“Walne” is an ASR error) saw that internationalisation is gradual for most firms.

Gezegd door Taco Reus in Video 5.3, minuut 02:09:

Als het misgaat, kan je een bedrijf dat je hebt overgenomen vaak ook weer makkelijker verkopen.

In English: the answer to question 5c of the sample exam. An acquisition is faster than building yourself and easier to sell on if it fails.

Gezegd door Taco Reus in Video 5.3, minuut 02:09:

Hoewel je daarbij vaak ziet dat er een zogenaamde learning race plaatsvindt.

In English: with alliances you often see a learning race.

Gezegd door Taco Reus in Video 5.3, minuut 03:19:

En je ziet dat cultuur en softe capabilities vaak heel moeilijk te integreren zijn bij overnames en allianties.

In English: culture and the softer capabilities are hard to integrate in acquisitions and alliances.

Dia 20 uit Slides - Module 5 CLIPS handout:

Johanson & Vahlne Internationalization theory

Liabilities of foreignness and OLI

Gezegd door Taco Reus in College 5 (02-10-2026), minuut 01:54:

Dus als je in het buitenland bent, dan heb je bepaalde nadelen die de bedrijven die lokaal zijn, de tick firms, niet hebben. En daar moet je eigenlijk tegenover bepaalde voordelen hebben.

“Tick firms” is an ASR error for local firms. The message: advantages (OLI) must outweigh the disadvantages (LOF).

Dia 5 uit PMIM Module 5 COLLEGE PPT 2026 deel 1 en 2:

Liabilities of foreignness (LOF) zijn de extra kosten die een buitenlands bedrijf heeft ten opzichte van lokale concurrenten

In English: LOF are the extra costs a foreign firm has compared with local competitors.

Dia 12 uit PMIM Module 5 COLLEGE PPT 2026 deel 1 en 2:

Concurrentievoordelen, core competenties, dynamic capabilities

This is the slide text for the O in OLI (ownership).

Gezegd door Taco Reus in College 5 (02-10-2026), minuut 24:08:

als derde factor de internalisatie dus dat is niet internationalisation maar internalisatie

In English: the third factor is internalization, which is not internationalization.

NUMMI and learning in an alliance

Gezegd door Taco Reus in College 5 (02-10-2026), minuut 87:18:

Wat stopt GM in deze samenwerking? De fabriek en de workforce? Ja, eigenlijk het gebouw. Het gebouw en de mensen. Dat kan je zien als de resources.

In English: GM contributes the building and the people, which you can see as the resources.

Gezegd door Taco Reus in College 5 (02-10-2026), minuut 93:48:

Je kan nog zo vriendelijk zijn aan het begin, maar als het uiteindelijk blijkt, nou ja, ze waren er vooral om een aantal dingen te halen. En dan moet je dus met samenwerkingen goed oppassen.

In English: his lesson on the learning race: look at the partner’s intentions in an alliance.

Geopolitics

Gezegd door Taco Reus in College 5 (02-10-2026), minuut 97:15:

Als je het over geopolitiek hebt, moet je het eigenlijk over instituties, over regels van het spel hebben.

In English: geopolitics is about institutions, the rules of the game.

Dia 25 uit PMIM Module 5 COLLEGE PPT 2026 deel 1 en 2:

Anarchie betekent niet noodzakelijkerwijs chaos. Het is als voetbalwedstrijd zonder scheidsrechter

In English: anarchy does not necessarily mean chaos. It is like a football match without a referee.

Dia 26 uit PMIM Module 5 COLLEGE PPT 2026 deel 1 en 2:

stable self-reinforcing state of mutual defection

That is the definition of the conflict equilibrium.

Gezegd door Taco Reus in College 5 (02-10-2026), minuut 112:31:

Als je een internationaal bedrijf bent. Dan heb je een wereld waarin er state-based economic order bestaat. En market-based economic order.

In English: as an international firm you face both a state-based and a market-based economic order.

Gezegd door Taco Reus in College 5 (02-10-2026), minuut 120:02:

Dat is dan het moment. Dat er in zo’n evenwicht. Opeens een verandering plaatsvindt.

In English: his description of disequilibrium.

Dia 32 uit PMIM Module 5 COLLEGE PPT 2026 deel 1 en 2:

Een veranderend beeld van wie je vriend is en wie je vijand.

In English: a changing view of who is your friend and who is your enemy. The slide names three types of shifts: redistribution of power, domestic politics (nationalism or populism) and changing shared beliefs and identities.