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Tuesday, March 24

  1. page Nonprofits and IB edited {IBA8010 {Review of “Nonprofits in the International Business Arena”.doc} {IBA8010 research …
    {IBA8010{Review of “Nonprofits in the International Business Arena”.doc}
    {IBA8010
    research paper
    Running Head: NONPROFITS AND IB Nonprofits in the International Business Arena Adrian Vinuales Pallares IBA8010: Seminar in International Business Alliant International University Spring 2009 Abstract This paper explores the relationship between International business (IB) and Non-profit Organizations (NPOs). First a review of recent actual literature will bring some insight about the terminology of what it is understood by IB and NPOs. Then, different theories and paradigms, like market imperfections and Foreign Direct Investment (FDI) which will help develop a new model/or new understanding (STILL DEVELOPING) of nonprofit-for profit collaboration that promotes IB. Later, an exploration of how NPOs collaborate to the IB arena, like promoting trading, social responsibility or helping other for-profit firms to overcome the barriers of international business, in relation to the mentioned theoretical frameworks. A future research agenda is also proposed in the conclusions. Introduction Very little systematic research has focused on relating Nonprofit Organizations (NPOs) to the International Business (IB) field; particularly the main reason that one could think is the lack of consensus on the definition of IB as a solely body of knowledge. Besides, the fact that the boundaries of IB are not well defined, the information developed has to be specific on the field but also relates to many other disciplines and levels of analysis. It is possible to observe in different literature (Ricks, 1985; Sutton & Stra, 1995; Shenkar, 2004; Jones & Khanna, 2006) how different authors have been trying to elucidate what is and what is not IB, trying to define its field of knowledge. Is it the sum of different international disciplines of business (Finance, marketing, economics, etc.)? Or it is a category per se? Maybe some years ago it was really an independent concept formed by those subcategories, but now, in a much more globalized world it looks like it would be possible to talk about a separation of those different subcategories: International Finance, International Economy, and so on. Then, new boundaries should be defined in every new category, defining the differences of what is theory in for example International Finance, Global Finance, or just Finance; and for sure the subcategories that those imply: trading, demand, macro, micro, laws, etc. Of course, this paper could go on in the same fashion in this paper since it is very difficult to reach an agreement on the IB concept; although this is not the purpose of this paper. Other reasons on that lack of relevance of NPOs in IB could be related to the fact that NPOs have not been targeted in IB theory is that NPOs are not really what is commonly understood by ‘business’ per se, since the offer a service with a different expectancy of return. So, they would not be either a service multinationals or product multinational. Despite the apparent fundamental distinction between profit and nonprofit organizations, their differences in organizational, structure, strategy, efficiency or effectiveness have received little systematic conceptual analysis by organizational theorists and few if any organizational studies have been conducted in other disciplines or similar characteristics. It is also important to clarify what it is understood by Nonprofit Organization. According to the Bloomsbury Business Library, NPO it is an organization that does not have financial profit as a main strategic objective. NPOs include charities, professional associations, educational institutions, labor unions, and religious, arts, community, research, and campaigning bodies. These organizations are not situated in either the public or private sectors, but in what has been called the third sector. Many have paid staff and working capital but, according to Peter Drucker (1995), their fundamental purpose is not to provide a product or service, but to change people. They are led by values rather than financial commitments to shareholders. NPOs or as some prefer, not-for-profit organizations (recognizing that for-profit enterprises do not always make a profit), may be incorporated formally as companies limited by guarantee; others may be created as trusts. A particular challenge to boards of non-profit entities is determining what performance measures are appropriate, given that the bottom-line profit criterion, by definition, does not apply. Perhaps, that uncertainty on how to measure results could be the major the challenge that prevents many authors from relating both IB and NPOs since they could not value the profit, consumption, or market share of those entities. Toyne (1989) says there is “an explicit and unifying interest in the international exchange process as it affects firm behavior and management practices”; that international exchange would be the key element that would help to identify IB as a body of knowledge that brings a common point between IB research and the NPOs arena. That would be that fundamental base that will support this paper, focusing on the drivers of IB and the effect of NPOs as a moderator of that field, as global strategies, social responsibility and other factor it will be explored below. On the other hand, the focus in the IB literature on government policies, economical factors and cultural differences that create market imperfections and that make FDI an economically rational strategic alternative for firms has diverted attention from a variety of other from mostly of the literature in the field, sacrificing others like NPOs. This paper analyzes the multiple effects of diverse types moderators created by nonprofits integrated into market imperfections, and hence on FDI by extension. The clarification of those relationships at a conceptual level should facilitate more precise and encompassing empirical testing for the future. Thus, after a review of the IB literature in the next section, the paper develops three possible moderators between NPOs and for profit organizations and their causal relationships to market imperfections and FDI. First, there is a great deal of collaborations between for profit and nonprofit sectors that affect market imperfections and FDI. Second, there are numerous dimensions of variability in codes of conduct, ethics, laws and policies that affect NPOs, and Nonprofits and it relation to the IB field. Third, there is a variety of converse IB factors on market imperfections and FDI like branding issues. The concluding section of the paper summarizes the arguments and suggests directions for future research. Review of IB theories literature The theoretical literature on FDI has been frequently and extensively reviewed by others. Boddewyn (2007) has integrated political variables in Dunning's analysis of ownership, internalization, and location advantages. That research enriches the eclectic theory of FDI by analyzing the political behavior of Multinational Enterprises (MNEs). MNEs are better understood, as argued there, as ‘political actors who actively try to influence their political environment’ (Boddewyn, 2007). The present paper pursues a different, but complementary, line of analysis. It emphasizes the diversity of moderators in the creation of partnerships, brands and policies and the diversity of their effects on market imperfections and the foreign direct investment behavior of firms. In the body of the FDI literature that explicitly views FDI as a response to market imperfections, there are many different types of market imperfections identified. Market imperfections, in general, are impediments to the "simple interaction of supply and demand to set a market price" (Rugman, 1985). Within the context of FDI theory, numerous particular types of market imperfections have been identified in the literature. These include imperfections in factor markets, intermediate goods markets, and final product markets; imperfections non directly related to NPOs. So, does market imperfections theory applies to NPOs? (EXPAND) Firms (for profit) in oligopolistic industries, according to the industry structure analysis, enjoy the advantages of economies of scale and other characteristics that give them market power; they have sufficient market power so that they can overcome the disadvantages of being foreign and compete with local competitors in host countries where they have FDI facilities. This theory thus provides an answer to an unanswered question in the international strategy literature: How can foreign firms compete with local firms? And in extension, how NPOs can even get part of that competing market power? As for government policies, antitrust policies (i.e., competition) can clearly become important factors that affect FDI via their consequences for industry structure; indeed, both the structural and behavioral aspects of the antitrust policies of home and host governments become potentially important determinants of FDI flows. And that could be the key for NPOs to penetrate those markets without help of market power, but with the institutional support. However, there has not been a sustained attempt in the literature to develop the implications of antitrust policies for FDI. The second emphasis in the market imperfections approach to FDI focuses on the internalization of transactions within MNEs in the face of transaction costs that make trade and licensing uneconomic alternatives compared with FDI. Transactions occur ‘when a good or service is transferred across a technologically separable interface. One stage of activity terminates and another begins’ (Williamson, 1985). This theoretical approach to the analysis of FDI seems to be the most commonly studied and developed, hence the one that would have the most support. Dunning (1995) has expanded internalization theory by suggesting an eclectic approach, whereby three conditions must be met for FDI to occur. First, a firm must be able to compete with local firms despite the disadvantages of being foreign, which it can do because of its market power as an oligopolistic firm. Second, FDI must be preferred over trade and licensing, which it is when market imperfections create additional transaction costs associated with trade and licensing; the additional costs make the market-based transactions (trade and licensing) less efficient than the internalized transactions that are made possible by foreign direct investment. Third, the location advantages of particular foreign countries make FDI in them preferable to FDI in other potential host countries and to domestic investment in the home country. Host and home government policies thus become important, according to Dunning (1995), not only as sources of market imperfections that make FDI preferable to trade or licensing, but also as determinants of the relative attractiveness of some host countries over other host countries and the home country. Otherwise, the internationalization process literature provides no explicit role in FDI theory for NPOs; however, implicitly it does allow a foreign firm's lack of familiarity with prospective host governments to be a deterrent to FDI, and hence an advantage of either trade or licensing as a strategic alternative. This issue of knowledge about the host government, and influence with it, has been addressed explicitly by Boddewyn (2007) in the context of internalization theory, as noted earlier, and could be another key element to have in account when talking about NPOs international penetration. Moderators Partnership This section will intend to provide some clues about the interrelationship of the roles of NPOs and the multinational corporations. NPOs are an example of an institution that plays an increasingly important role for business, organizations and society, and needs to be considered in international business research, as well as the factors behind the increasing trend for partnerships between NGOs and multinational corporations and the value that they can bring to both parties (Millar, Chong & Chen, 2004). The topic of “management” and nonprofit organizations (NPOs) continues to fascinate scholars (Helmig Jegers, Lapsley, 2004). This paper draws on varying theoretical perspectives to explore their respective contributions to our knowledge of NPOs. The two longstanding and contrasting disciplines of economics and sociology have contributed most, traditionally, to the study of NPOs. However, neither of these disciplines has resolved all the dilemmas associated with NPOs as a business entity (Helmig Jegers, Lapsley, 2004). The standard economic model does not apply well to the distinctive nonmarket situation of NPOs. The sociological perspectives offer interesting insight, but fail to develop plans of action for NPOs. As mentioned above, Boddewyn (2007) refers to the capacity that NPOs have a better knowledge about the host governments, and can influence the political participations of some foreign countries in the FDI of private firms. There is also a potential role of NPOs in the transfer of that institutional knowledge practices among countries or national business systems. Despite the little literature about the concept Intellectual Capital (IC) within the nonprofit context and its competitive nonprofit environment, IC can be utilized as a competitive tool it nonprofit organizations (NPOs). We will just recommend to expand on the idea of IC for future research since there is no space in this apper to cover this theoretical concept. OR MAYBE EXPAND ON THIS THEORY? Besides, it is widely recognized that NPOs like arts, sports and charitable organizations rely heavily on income from sponsorship as a difference from for-profit organizations. That creates a whole new area for interrelationship between institutions, private funders, and NPOs. That, in relation policies creates a new whole body of relationships, since new laws and accounting procedures makes NPOs and for profit organizations to have a more strict and detailed summary of donors and amounts transferred into programs. Social Responsibility This recent trend of cooperation among different actors within the IB arena is resulting in the creation and implementation of issue-specific transnational norms and rules, and the subsequent shift from public to private forms of governance. Many political scientists agree that authority also exists outside of formal political structures (Pattberg, 2005). For profit organizations seem to make their own rules and standards that acquire authority beyond the international system. This observation is often referred to as private transnational governance as opposed to public or international governance (Pattberg, 2005). Although the concept of private governance gains prominence in academic literature, it is not clear how private governance on the global scale is constructed and maintained or what specific or general conditions are necessary for private governance to emerge (Pattberg, 2005). As most research has focused on institutionalized cooperation between for-profit actors (self-regulation), this paper takes a closer look at those transnational systems of rule that result out of the enhanced cooperation between profit and nonprofit actors. Pattber (2205) expand on this concept on his research talking about a ‘coregulation’ between profit and nonprofit actors in developing this new common code of conducts in their transnational acts. Grobman (2007) considers and explores the connection between the nature of the principal constituencies of nonprofit, tax-exempt, national and international trade and professional associations and the contents of the formal ethics codes promulgated by those associations. His empirical study analyzes differences in ethics code content based upon whether the association constituencies are principally nonprofit, for-profit, or government. It includes a content analysis of 150 association ethics codes and tests that proves the constituencies of such associations influencing code content. Firms and industries increasingly subscribe to voluntary codes of conduct. These self-regulatory governance systems can be effective in establishing a more sustainable and inclusive global economy. However, these codes can also be largely symbolic, reactive measures to quell public criticism. Cross-sector alliances (between for-profit and nonprofit actors) present a learning platform for infusing participants with greater incentives to be socially responsible. They can provide multinationals new capabilities that allow them to more closely ally social responsibility with economic performance. (Arya & Salk, 2006) examines learning facilitators in cross-sector alliances that enrich corporate understanding of stakeholder concerns. (Arya & Salk, 2006) suggests that these organizational learning experiments can translate into globally responsible practices and processes that improve the content and effectiveness of voluntary corporate codes. Branding Global nonprofit brands are the world's new “super brands” (Laidler-Kylander, Quelch, & Simonin, 2007). Nonprofit organizations command unprecedented levels of trust, and nonprofit brand valuations are on par with major international corporations. Leaders and managers of nonprofits face new challenges in the stewardship of their brands. Based on current thinking in nonprofit management and detailed interviews with close to one hundred executives of ten international nonprofit organizations, Laidler-Kylander, et al. (2007) reported strategic lessons on brand building and brand valuation activities of international nonprofits. The multiple roles and stakeholders that global nonprofit brands must address make nonprofit brand building complex and challenging. In particular, differences between advocacy and relief organizations should be further explained. Despite the complexity, international nonprofit organizations may have an advantage over for-profits in leveraging public trust and brand communication. Advocacy organizations in particular successfully link brand and cause to good effect. The valuation of nonprofit brands is a new strategic challenge with significant appeal, but also significant concerns for international nonprofits. In addition to providing nonprofit leaders and managers with a better understanding of brand building activities, imperatives, and best practices in the field, this article outlines the opportunities and threats associated with the valuation of nonprofit brands. For example, in the case of US, Hemphill (2005) provides information on the Business for Diplomatic Action which was incorporated as a U.S. non-profit organization on January 1, 2004. The purpose of BDA is to mobilize American multinational corporations to build lasting and mutually enriching partnerships with host communities throughout the world (Hemphill, 2005). BDA president Keith Reinhard is working to have American multinationals work collectively to reduce anti-American sentiment overseas (Hemphill, 2005). Barriers!! See Ghemawat article to expand on this!!! Model of Integration FDI + Market Imperfections (internalization) + Moderators (Partnership-social resp-branding) = MODEL OF COLLABORATION?? New theoretical frameworks (Psych?) + IC (knowledge)+ ??? Recommendations/Conclusions …. blabla But, on the other side that makes more difficult for IB to relate to a specific discipline, sciences, and/or theory field, which again make the task of developing IB theory a very difficult task; the researcher has to be very careful in not fall in the error of trying to add all those components to its papers or investigations, and just try to limit that basic concept to certain few focused theories and specific cases. The same thing when NPO research… Then FDI… market … Moderatos overview Model integratios mention Future research needed… References Nonprofit organization. (2007, January). Bloomsbury Business Library - Business & Management Dictionary Drucker, Peter F. (1995) Managing the non-profit organization. Butterworth-Heinemann Toyne, B. (1989). International exchange: A Foundation of Theory building in International Business, JIBS, 20(1); 1-17. Ricks, D. A. 1985. International Business research: Past, Present and Future. Journal of International Business Studies. 16(2): 1-4. Sutton & Straw; 1995. What Theory is Not; Administrative Science Quarterly, September Pages 371-384. Shenkar, O.2004. One more time: international business in a global economy. Journal of International Business Studies 35, 161–171. Jones G & Khanna, T. 2006. Bringing History Back to International Business . Journal of International Business Studies 37, 453–468 Academy of International Business. Millar, Carla C. J. M.; Chong Ju Choi; Chen, Stephen (2004). Global Strategic Partnerships between MNEs and NGOs: Drivers of Change and Ethical Issues. Business & Society Review (00453609), Vol. 109 Issue 4, p395-414, 20p. Helmig, Bernd; Jegers, Marc; Lapsley, Irvine (2004). Challenges in Managing Nonprofit Organizations: A Research Overview. Voluntas: International Journal of Voluntary & Nonprofit Organizations, Vol. 15 Issue 2, p101-116, 16p. Pattberg, Philipp (2005). The Institutionalization of Private Governance: How Business and Nonprofit Organizations Agree on Transnational Rules. Governance, Vol. 18 Issue 4, p589-610, 22p. Arya, Bindu; Salk, Jane E. (2006). Cross-Sector Alliance Learning And Effectiveness Of Voluntary Codes Of Corporate Social Responsibility. Business Ethics Quarterly, Apr2006, Vol. 16 Issue 2, p211-234, 24p; Grobman, Gary M. (2007). An Analysis of Codes of Ethics of Nonprofit, Tax-Exempt Membership Associations. By:. Public Integrity, Vol. 9 Issue 3, p245-263, 19p, 5 charts. Laidler-Kylander, Nathalie; Quelch, John A.; Simonin, Bernard L. (2007). Building and valuing global brands in the nonprofit sector. Nonprofit Management & Leadership, Spring2007, Vol. 17 Issue 3, p253-277, 25p, 6 charts, 2 diagrams, 1 graph. Hemphill, Thomas A. (2005). Business Patriotism and the Global Reputation of the American Brand. Journal of Corporate Citizenship, Fall2005 Issue 19, p25-29, 5p. Boddewyn, Jean J (2007). The Internationalization of the Public-Affairs Function in U.S. Multinational Enterprises: Organization and Management by. Business & Society, Vol. 46 Issue: Number 2 p136-173, 38p; (AN 11940623) Rugman, A. M. (1985). Internalization is still a General Theory of Foreign Direct Investment. Welwirtschaftliches Archiv, 121 (3). Williamson, O. E. 1985. The economic institutions of capitalism. (New York: Free Press). Market imperfections approach. Dunning, John (1995). “The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions,” and “Reappraising the Eclectic Paradigm in an Age of Alliance Capitalism,” Journal of International Business Studies, 21 (3), 1990 and 26 (3), 1995.
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Monday, March 16

  1. page Nonprofits and IB edited {IBA8010 research paper draft.doc} \ {1.doc} Running Head: NONPROFITS AND IB Nonprofits in…
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    Running Head: NONPROFITS AND IB Nonprofits in the International Business Arena Adrian Vinuales Pallares IBA8010: Seminar in International Business Alliant International University Spring 2009 Abstract This paper explores the relationship between International business (IB) and Non-profit Organizations (NPOs). First a review of recent actual literature will bring some insight about the terminology of what it is understood by IB and NPOs. Then, different theories and paradigms, like market imperfections and Foreign Direct Investment (FDI) which will help develop a new model/or new understanding (STILL DEVELOPING) of nonprofit-for profit collaboration that promotes IB. Later, an exploration of how NPOs collaborate to the IB arena, like promoting trading, social responsibility or helping other for-profit firms to overcome the barriers of international business, in relation to the mentioned theoretical frameworks. A future research agenda is also proposed in the conclusions. Introduction Very little systematic research has focused on relating Nonprofit Organizations (NPOs) to the International Business (IB) field; particularly the main reason that one could think is the lack of consensus on the definition of IB as a solely body of knowledge. Besides, the fact that the boundaries of IB are not well defined, the information developed has to be specific on the field but also relates to many other disciplines and levels of analysis. It is possible to observe in different literature (Ricks, 1985; Sutton & Stra, 1995; Shenkar, 2004; Jones & Khanna, 2006) how different authors have been trying to elucidate what is and what is not IB, trying to define its field of knowledge. Is it the sum of different international disciplines of business (Finance, marketing, economics, etc.)? Or it is a category per se? Maybe some years ago it was really an independent concept formed by those subcategories, but now, in a much more globalized world it looks like it would be possible to talk about a separation of those different subcategories: International Finance, International Economy, and so on. Then, new boundaries should be defined in every new category, defining the differences of what is theory in for example International Finance, Global Finance, or just Finance; and for sure the subcategories that those imply: trading, demand, macro, micro, laws, etc. Of course, this paper could go on in the same fashion in this paper since it is very difficult to reach an agreement on the IB concept; although this is not the purpose of this paper. Other reasons on that lack of relevance of NPOs in IB could be related to the fact that NPOs have not been targeted in IB theory is that NPOs are not really what is commonly understood by ‘business’ per se, since the offer a service with a different expectancy of return. So, they would not be either a service multinationals or product multinational. Despite the apparent fundamental distinction between profit and nonprofit organizations, their differences in organizational, structure, strategy, efficiency or effectiveness have received little systematic conceptual analysis by organizational theorists and few if any organizational studies have been conducted in other disciplines or similar characteristics. It is also important to clarify what it is understood by Nonprofit Organization. According to the Bloomsbury Business Library, NPO it is an organization that does not have financial profit as a main strategic objective. NPOs include charities, professional associations, educational institutions, labor unions, and religious, arts, community, research, and campaigning bodies. These organizations are not situated in either the public or private sectors, but in what has been called the third sector. Many have paid staff and working capital but, according to Peter Drucker (1995), their fundamental purpose is not to provide a product or service, but to change people. They are led by values rather than financial commitments to shareholders. NPOs or as some prefer, not-for-profit organizations (recognizing that for-profit enterprises do not always make a profit), may be incorporated formally as companies limited by guarantee; others may be created as trusts. A particular challenge to boards of non-profit entities is determining what performance measures are appropriate, given that the bottom-line profit criterion, by definition, does not apply. Perhaps, that uncertainty on how to measure results could be the major the challenge that prevents many authors from relating both IB and NPOs since they could not value the profit, consumption, or market share of those entities. Toyne (1989) says there is “an explicit and unifying interest in the international exchange process as it affects firm behavior and management practices”; that international exchange would be the key element that would help to identify IB as a body of knowledge that brings a common point between IB research and the NPOs arena. That would be that fundamental base that will support this paper, focusing on the drivers of IB and the effect of NPOs as a moderator of that field, as global strategies, social responsibility and other factor it will be explored below. On the other hand, the focus in the IB literature on government policies, economical factors and cultural differences that create market imperfections and that make FDI an economically rational strategic alternative for firms has diverted attention from a variety of other from mostly of the literature in the field, sacrificing others like NPOs. This paper analyzes the multiple effects of diverse types moderators created by nonprofits integrated into market imperfections, and hence on FDI by extension. The clarification of those relationships at a conceptual level should facilitate more precise and encompassing empirical testing for the future. Thus, after a review of the IB literature in the next section, the paper develops three possible moderators between NPOs and for profit organizations and their causal relationships to market imperfections and FDI. First, there is a great deal of collaborations between for profit and nonprofit sectors that affect market imperfections and FDI. Second, there are numerous dimensions of variability in codes of conduct, ethics, laws and policies that affect NPOs, and Nonprofits and it relation to the IB field. Third, there is a variety of converse IB factors on market imperfections and FDI like branding issues. The concluding section of the paper summarizes the arguments and suggests directions for future research. Review of IB theories literature The theoretical literature on FDI has been frequently and extensively reviewed by others. Boddewyn (2007) has integrated political variables in Dunning's analysis of ownership, internalization, and location advantages. That research enriches the eclectic theory of FDI by analyzing the political behavior of Multinational Enterprises (MNEs). MNEs are better understood, as argued there, as ‘political actors who actively try to influence their political environment’ (Boddewyn, 2007). The present paper pursues a different, but complementary, line of analysis. It emphasizes the diversity of moderators in the creation of partnerships, brands and policies and the diversity of their effects on market imperfections and the foreign direct investment behavior of firms. In the body of the FDI literature that explicitly views FDI as a response to market imperfections, there are many different types of market imperfections identified. Market imperfections, in general, are impediments to the "simple interaction of supply and demand to set a market price" (Rugman, 1985). Within the context of FDI theory, numerous particular types of market imperfections have been identified in the literature. These include imperfections in factor markets, intermediate goods markets, and final product markets; imperfections non directly related to NPOs. So, does market imperfections theory applies to NPOs? (EXPAND) Firms (for profit) in oligopolistic industries, according to the industry structure analysis, enjoy the advantages of economies of scale and other characteristics that give them market power; they have sufficient market power so that they can overcome the disadvantages of being foreign and compete with local competitors in host countries where they have FDI facilities. This theory thus provides an answer to an unanswered question in the international strategy literature: How can foreign firms compete with local firms? And in extension, how NPOs can even get part of that competing market power? As for government policies, antitrust policies (i.e., competition) can clearly become important factors that affect FDI via their consequences for industry structure; indeed, both the structural and behavioral aspects of the antitrust policies of home and host governments become potentially important determinants of FDI flows. And that could be the key for NPOs to penetrate those markets without help of market power, but with the institutional support. However, there has not been a sustained attempt in the literature to develop the implications of antitrust policies for FDI. The second emphasis in the market imperfections approach to FDI focuses on the internalization of transactions within MNEs in the face of transaction costs that make trade and licensing uneconomic alternatives compared with FDI. Transactions occur ‘when a good or service is transferred across a technologically separable interface. One stage of activity terminates and another begins’ (Williamson, 1985). This theoretical approach to the analysis of FDI seems to be the most commonly studied and developed, hence the one that would have the most support. Dunning (1995) has expanded internalization theory by suggesting an eclectic approach, whereby three conditions must be met for FDI to occur. First, a firm must be able to compete with local firms despite the disadvantages of being foreign, which it can do because of its market power as an oligopolistic firm. Second, FDI must be preferred over trade and licensing, which it is when market imperfections create additional transaction costs associated with trade and licensing; the additional costs make the market-based transactions (trade and licensing) less efficient than the internalized transactions that are made possible by foreign direct investment. Third, the location advantages of particular foreign countries make FDI in them preferable to FDI in other potential host countries and to domestic investment in the home country. Host and home government policies thus become important, according to Dunning (1995), not only as sources of market imperfections that make FDI preferable to trade or licensing, but also as determinants of the relative attractiveness of some host countries over other host countries and the home country. Otherwise, the internationalization process literature provides no explicit role in FDI theory for NPOs; however, implicitly it does allow a foreign firm's lack of familiarity with prospective host governments to be a deterrent to FDI, and hence an advantage of either trade or licensing as a strategic alternative. This issue of knowledge about the host government, and influence with it, has been addressed explicitly by Boddewyn (2007) in the context of internalization theory, as noted earlier, and could be another key element to have in account when talking about NPOs international penetration. Moderators Partnership This section will intend to provide some clues about the interrelationship of the roles of NPOs and the multinational corporations. NPOs are an example of an institution that plays an increasingly important role for business, organizations and society, and needs to be considered in international business research, as well as the factors behind the increasing trend for partnerships between NGOs and multinational corporations and the value that they can bring to both parties (Millar, Chong & Chen, 2004). The topic of “management” and nonprofit organizations (NPOs) continues to fascinate scholars (Helmig Jegers, Lapsley, 2004). This paper draws on varying theoretical perspectives to explore their respective contributions to our knowledge of NPOs. The two longstanding and contrasting disciplines of economics and sociology have contributed most, traditionally, to the study of NPOs. However, neither of these disciplines has resolved all the dilemmas associated with NPOs as a business entity (Helmig Jegers, Lapsley, 2004). The standard economic model does not apply well to the distinctive nonmarket situation of NPOs. The sociological perspectives offer interesting insight, but fail to develop plans of action for NPOs. As mentioned above, Boddewyn (2007) refers to the capacity that NPOs have a better knowledge about the host governments, and can influence the political participations of some foreign countries in the FDI of private firms. There is also a potential role of NPOs in the transfer of that institutional knowledge practices among countries or national business systems. Despite the little literature about the concept Intellectual Capital (IC) within the nonprofit context and its competitive nonprofit environment, IC can be utilized as a competitive tool it nonprofit organizations (NPOs). We will just recommend to expand on the idea of IC for future research since there is no space in this apper to cover this theoretical concept. OR MAYBE EXPAND ON THIS THEORY? Besides, it is widely recognized that NPOs like arts, sports and charitable organizations rely heavily on income from sponsorship as a difference from for-profit organizations. That creates a whole new area for interrelationship between institutions, private funders, and NPOs. That, in relation policies creates a new whole body of relationships, since new laws and accounting procedures makes NPOs and for profit organizations to have a more strict and detailed summary of donors and amounts transferred into programs. Social Responsibility This recent trend of cooperation among different actors within the IB arena is resulting in the creation and implementation of issue-specific transnational norms and rules, and the subsequent shift from public to private forms of governance. Many political scientists agree that authority also exists outside of formal political structures (Pattberg, 2005). For profit organizations seem to make their own rules and standards that acquire authority beyond the international system. This observation is often referred to as private transnational governance as opposed to public or international governance (Pattberg, 2005). Although the concept of private governance gains prominence in academic literature, it is not clear how private governance on the global scale is constructed and maintained or what specific or general conditions are necessary for private governance to emerge (Pattberg, 2005). As most research has focused on institutionalized cooperation between for-profit actors (self-regulation), this paper takes a closer look at those transnational systems of rule that result out of the enhanced cooperation between profit and nonprofit actors. Pattber (2205) expand on this concept on his research talking about a ‘coregulation’ between profit and nonprofit actors in developing this new common code of conducts in their transnational acts. Grobman (2007) considers and explores the connection between the nature of the principal constituencies of nonprofit, tax-exempt, national and international trade and professional associations and the contents of the formal ethics codes promulgated by those associations. His empirical study analyzes differences in ethics code content based upon whether the association constituencies are principally nonprofit, for-profit, or government. It includes a content analysis of 150 association ethics codes and tests that proves the constituencies of such associations influencing code content. Firms and industries increasingly subscribe to voluntary codes of conduct. These self-regulatory governance systems can be effective in establishing a more sustainable and inclusive global economy. However, these codes can also be largely symbolic, reactive measures to quell public criticism. Cross-sector alliances (between for-profit and nonprofit actors) present a learning platform for infusing participants with greater incentives to be socially responsible. They can provide multinationals new capabilities that allow them to more closely ally social responsibility with economic performance. (Arya & Salk, 2006) examines learning facilitators in cross-sector alliances that enrich corporate understanding of stakeholder concerns. (Arya & Salk, 2006) suggests that these organizational learning experiments can translate into globally responsible practices and processes that improve the content and effectiveness of voluntary corporate codes. Branding Global nonprofit brands are the world's new “super brands” (Laidler-Kylander, Quelch, & Simonin, 2007). Nonprofit organizations command unprecedented levels of trust, and nonprofit brand valuations are on par with major international corporations. Leaders and managers of nonprofits face new challenges in the stewardship of their brands. Based on current thinking in nonprofit management and detailed interviews with close to one hundred executives of ten international nonprofit organizations, Laidler-Kylander, et al. (2007) reported strategic lessons on brand building and brand valuation activities of international nonprofits. The multiple roles and stakeholders that global nonprofit brands must address make nonprofit brand building complex and challenging. In particular, differences between advocacy and relief organizations should be further explained. Despite the complexity, international nonprofit organizations may have an advantage over for-profits in leveraging public trust and brand communication. Advocacy organizations in particular successfully link brand and cause to good effect. The valuation of nonprofit brands is a new strategic challenge with significant appeal, but also significant concerns for international nonprofits. In addition to providing nonprofit leaders and managers with a better understanding of brand building activities, imperatives, and best practices in the field, this article outlines the opportunities and threats associated with the valuation of nonprofit brands. For example, in the case of US, Hemphill (2005) provides information on the Business for Diplomatic Action which was incorporated as a U.S. non-profit organization on January 1, 2004. The purpose of BDA is to mobilize American multinational corporations to build lasting and mutually enriching partnerships with host communities throughout the world (Hemphill, 2005). BDA president Keith Reinhard is working to have American multinationals work collectively to reduce anti-American sentiment overseas (Hemphill, 2005). Barriers!! See Ghemawat article to expand on this!!! Model of Integration FDI + Market Imperfections (internalization) + Moderators (Partnership-social resp-branding) = MODEL OF COLLABORATION?? New theoretical frameworks (Psych?) + IC (knowledge)+ ??? Recommendations/Conclusions …. blabla But, on the other side that makes more difficult for IB to relate to a specific discipline, sciences, and/or theory field, which again make the task of developing IB theory a very difficult task; the researcher has to be very careful in not fall in the error of trying to add all those components to its papers or investigations, and just try to limit that basic concept to certain few focused theories and specific cases. The same thing when NPO research… Then FDI… market … Moderatos overview Model integratios mention Future research needed… References Nonprofit organization. (2007, January). Bloomsbury Business Library - Business & Management Dictionary Drucker, Peter F. (1995) Managing the non-profit organization. Butterworth-Heinemann Toyne, B. (1989). International exchange: A Foundation of Theory building in International Business, JIBS, 20(1); 1-17. Ricks, D. A. 1985. International Business research: Past, Present and Future. Journal of International Business Studies. 16(2): 1-4. Sutton & Straw; 1995. What Theory is Not; Administrative Science Quarterly, September Pages 371-384. Shenkar, O.2004. One more time: international business in a global economy. Journal of International Business Studies 35, 161–171. Jones G & Khanna, T. 2006. Bringing History Back to International Business . Journal of International Business Studies 37, 453–468 Academy of International Business. Millar, Carla C. J. M.; Chong Ju Choi; Chen, Stephen (2004). Global Strategic Partnerships between MNEs and NGOs: Drivers of Change and Ethical Issues. Business & Society Review (00453609), Vol. 109 Issue 4, p395-414, 20p. Helmig, Bernd; Jegers, Marc; Lapsley, Irvine (2004). Challenges in Managing Nonprofit Organizations: A Research Overview. Voluntas: International Journal of Voluntary & Nonprofit Organizations, Vol. 15 Issue 2, p101-116, 16p. Pattberg, Philipp (2005). The Institutionalization of Private Governance: How Business and Nonprofit Organizations Agree on Transnational Rules. Governance, Vol. 18 Issue 4, p589-610, 22p. Arya, Bindu; Salk, Jane E. (2006). Cross-Sector Alliance Learning And Effectiveness Of Voluntary Codes Of Corporate Social Responsibility. Business Ethics Quarterly, Apr2006, Vol. 16 Issue 2, p211-234, 24p; Grobman, Gary M. (2007). An Analysis of Codes of Ethics of Nonprofit, Tax-Exempt Membership Associations. By:. Public Integrity, Vol. 9 Issue 3, p245-263, 19p, 5 charts. Laidler-Kylander, Nathalie; Quelch, John A.; Simonin, Bernard L. (2007). Building and valuing global brands in the nonprofit sector. Nonprofit Management & Leadership, Spring2007, Vol. 17 Issue 3, p253-277, 25p, 6 charts, 2 diagrams, 1 graph. Hemphill, Thomas A. (2005). Business Patriotism and the Global Reputation of the American Brand. Journal of Corporate Citizenship, Fall2005 Issue 19, p25-29, 5p. Boddewyn, Jean J (2007). The Internationalization of the Public-Affairs Function in U.S. Multinational Enterprises: Organization and Management by. Business & Society, Vol. 46 Issue: Number 2 p136-173, 38p; (AN 11940623) Rugman, A. M. (1985). Internalization is still a General Theory of Foreign Direct Investment. Welwirtschaftliches Archiv, 121 (3). Williamson, O. E. 1985. The economic institutions of capitalism. (New York: Free Press). Market imperfections approach. Dunning, John (1995). “The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions,” and “Reappraising the Eclectic Paradigm in an Age of Alliance Capitalism,” Journal of International Business Studies, 21 (3), 1990 and 26 (3), 1995.
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  2. page Nonprofits and IB edited {IBA8010 research paper draft.doc} \ {1.doc} Running Head: NONPROFITS AND IB Nonprofits in…
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    Running Head: NONPROFITS AND IB Nonprofits in the International Business Arena Adrian Vinuales Pallares IBA8010: Seminar in International Business Alliant International University Spring 2009 Abstract This paper explores the relationship between International business (IB) and Non-profit Organizations (NPOs). First a review of recent actual literature will bring some insight about the terminology of what it is understood by IB and NPOs. Then, different theories and paradigms, like market imperfections and Foreign Direct Investment (FDI) which will help develop a new model/or new understanding (STILL DEVELOPING) of nonprofit-for profit collaboration that promotes IB. Later, an exploration of how NPOs collaborate to the IB arena, like promoting trading, social responsibility or helping other for-profit firms to overcome the barriers of international business, in relation to the mentioned theoretical frameworks. A future research agenda is also proposed in the conclusions. Introduction Very little systematic research has focused on relating Nonprofit Organizations (NPOs) to the International Business (IB) field; particularly the main reason that one could think is the lack of consensus on the definition of IB as a solely body of knowledge. Besides, the fact that the boundaries of IB are not well defined, the information developed has to be specific on the field but also relates to many other disciplines and levels of analysis. It is possible to observe in different literature (Ricks, 1985; Sutton & Stra, 1995; Shenkar, 2004; Jones & Khanna, 2006) how different authors have been trying to elucidate what is and what is not IB, trying to define its field of knowledge. Is it the sum of different international disciplines of business (Finance, marketing, economics, etc.)? Or it is a category per se? Maybe some years ago it was really an independent concept formed by those subcategories, but now, in a much more globalized world it looks like it would be possible to talk about a separation of those different subcategories: International Finance, International Economy, and so on. Then, new boundaries should be defined in every new category, defining the differences of what is theory in for example International Finance, Global Finance, or just Finance; and for sure the subcategories that those imply: trading, demand, macro, micro, laws, etc. Of course, this paper could go on in the same fashion in this paper since it is very difficult to reach an agreement on the IB concept; although this is not the purpose of this paper. Other reasons on that lack of relevance of NPOs in IB could be related to the fact that NPOs have not been targeted in IB theory is that NPOs are not really what is commonly understood by ‘business’ per se, since the offer a service with a different expectancy of return. So, they would not be either a service multinationals or product multinational. Despite the apparent fundamental distinction between profit and nonprofit organizations, their differences in organizational, structure, strategy, efficiency or effectiveness have received little systematic conceptual analysis by organizational theorists and few if any organizational studies have been conducted in other disciplines or similar characteristics. It is also important to clarify what it is understood by Nonprofit Organization. According to the Bloomsbury Business Library, NPO it is an organization that does not have financial profit as a main strategic objective. NPOs include charities, professional associations, educational institutions, labor unions, and religious, arts, community, research, and campaigning bodies. These organizations are not situated in either the public or private sectors, but in what has been called the third sector. Many have paid staff and working capital but, according to Peter Drucker (1995), their fundamental purpose is not to provide a product or service, but to change people. They are led by values rather than financial commitments to shareholders. NPOs or as some prefer, not-for-profit organizations (recognizing that for-profit enterprises do not always make a profit), may be incorporated formally as companies limited by guarantee; others may be created as trusts. A particular challenge to boards of non-profit entities is determining what performance measures are appropriate, given that the bottom-line profit criterion, by definition, does not apply. Perhaps, that uncertainty on how to measure results could be the major the challenge that prevents many authors from relating both IB and NPOs since they could not value the profit, consumption, or market share of those entities. Toyne (1989) says there is “an explicit and unifying interest in the international exchange process as it affects firm behavior and management practices”; that international exchange would be the key element that would help to identify IB as a body of knowledge that brings a common point between IB research and the NPOs arena. That would be that fundamental base that will support this paper, focusing on the drivers of IB and the effect of NPOs as a moderator of that field, as global strategies, social responsibility and other factor it will be explored below. On the other hand, the focus in the IB literature on government policies, economical factors and cultural differences that create market imperfections and that make FDI an economically rational strategic alternative for firms has diverted attention from a variety of other from mostly of the literature in the field, sacrificing others like NPOs. This paper analyzes the multiple effects of diverse types moderators created by nonprofits integrated into market imperfections, and hence on FDI by extension. The clarification of those relationships at a conceptual level should facilitate more precise and encompassing empirical testing for the future. Thus, after a review of the IB literature in the next section, the paper develops three possible moderators between NPOs and for profit organizations and their causal relationships to market imperfections and FDI. First, there is a great deal of collaborations between for profit and nonprofit sectors that affect market imperfections and FDI. Second, there are numerous dimensions of variability in codes of conduct, ethics, laws and policies that affect NPOs, and Nonprofits and it relation to the IB field. Third, there is a variety of converse IB factors on market imperfections and FDI like branding issues. The concluding section of the paper summarizes the arguments and suggests directions for future research. Review of IB theories literature The theoretical literature on FDI has been frequently and extensively reviewed by others. Boddewyn (2007) has integrated political variables in Dunning's analysis of ownership, internalization, and location advantages. That research enriches the eclectic theory of FDI by analyzing the political behavior of Multinational Enterprises (MNEs). MNEs are better understood, as argued there, as ‘political actors who actively try to influence their political environment’ (Boddewyn, 2007). The present paper pursues a different, but complementary, line of analysis. It emphasizes the diversity of moderators in the creation of partnerships, brands and policies and the diversity of their effects on market imperfections and the foreign direct investment behavior of firms. In the body of the FDI literature that explicitly views FDI as a response to market imperfections, there are many different types of market imperfections identified. Market imperfections, in general, are impediments to the "simple interaction of supply and demand to set a market price" (Rugman, 1985). Within the context of FDI theory, numerous particular types of market imperfections have been identified in the literature. These include imperfections in factor markets, intermediate goods markets, and final product markets; imperfections non directly related to NPOs. So, does market imperfections theory applies to NPOs? (EXPAND) Firms (for profit) in oligopolistic industries, according to the industry structure analysis, enjoy the advantages of economies of scale and other characteristics that give them market power; they have sufficient market power so that they can overcome the disadvantages of being foreign and compete with local competitors in host countries where they have FDI facilities. This theory thus provides an answer to an unanswered question in the international strategy literature: How can foreign firms compete with local firms? And in extension, how NPOs can even get part of that competing market power? As for government policies, antitrust policies (i.e., competition) can clearly become important factors that affect FDI via their consequences for industry structure; indeed, both the structural and behavioral aspects of the antitrust policies of home and host governments become potentially important determinants of FDI flows. And that could be the key for NPOs to penetrate those markets without help of market power, but with the institutional support. However, there has not been a sustained attempt in the literature to develop the implications of antitrust policies for FDI. The second emphasis in the market imperfections approach to FDI focuses on the internalization of transactions within MNEs in the face of transaction costs that make trade and licensing uneconomic alternatives compared with FDI. Transactions occur ‘when a good or service is transferred across a technologically separable interface. One stage of activity terminates and another begins’ (Williamson, 1985). This theoretical approach to the analysis of FDI seems to be the most commonly studied and developed, hence the one that would have the most support. Dunning (1995) has expanded internalization theory by suggesting an eclectic approach, whereby three conditions must be met for FDI to occur. First, a firm must be able to compete with local firms despite the disadvantages of being foreign, which it can do because of its market power as an oligopolistic firm. Second, FDI must be preferred over trade and licensing, which it is when market imperfections create additional transaction costs associated with trade and licensing; the additional costs make the market-based transactions (trade and licensing) less efficient than the internalized transactions that are made possible by foreign direct investment. Third, the location advantages of particular foreign countries make FDI in them preferable to FDI in other potential host countries and to domestic investment in the home country. Host and home government policies thus become important, according to Dunning (1995), not only as sources of market imperfections that make FDI preferable to trade or licensing, but also as determinants of the relative attractiveness of some host countries over other host countries and the home country. Otherwise, the internationalization process literature provides no explicit role in FDI theory for NPOs; however, implicitly it does allow a foreign firm's lack of familiarity with prospective host governments to be a deterrent to FDI, and hence an advantage of either trade or licensing as a strategic alternative. This issue of knowledge about the host government, and influence with it, has been addressed explicitly by Boddewyn (2007) in the context of internalization theory, as noted earlier, and could be another key element to have in account when talking about NPOs international penetration. Moderators Partnership This section will intend to provide some clues about the interrelationship of the roles of NPOs and the multinational corporations. NPOs are an example of an institution that plays an increasingly important role for business, organizations and society, and needs to be considered in international business research, as well as the factors behind the increasing trend for partnerships between NGOs and multinational corporations and the value that they can bring to both parties (Millar, Chong & Chen, 2004). The topic of “management” and nonprofit organizations (NPOs) continues to fascinate scholars (Helmig Jegers, Lapsley, 2004). This paper draws on varying theoretical perspectives to explore their respective contributions to our knowledge of NPOs. The two longstanding and contrasting disciplines of economics and sociology have contributed most, traditionally, to the study of NPOs. However, neither of these disciplines has resolved all the dilemmas associated with NPOs as a business entity (Helmig Jegers, Lapsley, 2004). The standard economic model does not apply well to the distinctive nonmarket situation of NPOs. The sociological perspectives offer interesting insight, but fail to develop plans of action for NPOs. As mentioned above, Boddewyn (2007) refers to the capacity that NPOs have a better knowledge about the host governments, and can influence the political participations of some foreign countries in the FDI of private firms. There is also a potential role of NPOs in the transfer of that institutional knowledge practices among countries or national business systems. Despite the little literature about the concept Intellectual Capital (IC) within the nonprofit context and its competitive nonprofit environment, IC can be utilized as a competitive tool it nonprofit organizations (NPOs). We will just recommend to expand on the idea of IC for future research since there is no space in this apper to cover this theoretical concept. OR MAYBE EXPAND ON THIS THEORY? Besides, it is widely recognized that NPOs like arts, sports and charitable organizations rely heavily on income from sponsorship as a difference from for-profit organizations. That creates a whole new area for interrelationship between institutions, private funders, and NPOs. That, in relation policies creates a new whole body of relationships, since new laws and accounting procedures makes NPOs and for profit organizations to have a more strict and detailed summary of donors and amounts transferred into programs. Social Responsibility This recent trend of cooperation among different actors within the IB arena is resulting in the creation and implementation of issue-specific transnational norms and rules, and the subsequent shift from public to private forms of governance. Many political scientists agree that authority also exists outside of formal political structures (Pattberg, 2005). For profit organizations seem to make their own rules and standards that acquire authority beyond the international system. This observation is often referred to as private transnational governance as opposed to public or international governance (Pattberg, 2005). Although the concept of private governance gains prominence in academic literature, it is not clear how private governance on the global scale is constructed and maintained or what specific or general conditions are necessary for private governance to emerge (Pattberg, 2005). As most research has focused on institutionalized cooperation between for-profit actors (self-regulation), this paper takes a closer look at those transnational systems of rule that result out of the enhanced cooperation between profit and nonprofit actors. Pattber (2205) expand on this concept on his research talking about a ‘coregulation’ between profit and nonprofit actors in developing this new common code of conducts in their transnational acts. Grobman (2007) considers and explores the connection between the nature of the principal constituencies of nonprofit, tax-exempt, national and international trade and professional associations and the contents of the formal ethics codes promulgated by those associations. His empirical study analyzes differences in ethics code content based upon whether the association constituencies are principally nonprofit, for-profit, or government. It includes a content analysis of 150 association ethics codes and tests that proves the constituencies of such associations influencing code content. Firms and industries increasingly subscribe to voluntary codes of conduct. These self-regulatory governance systems can be effective in establishing a more sustainable and inclusive global economy. However, these codes can also be largely symbolic, reactive measures to quell public criticism. Cross-sector alliances (between for-profit and nonprofit actors) present a learning platform for infusing participants with greater incentives to be socially responsible. They can provide multinationals new capabilities that allow them to more closely ally social responsibility with economic performance. (Arya & Salk, 2006) examines learning facilitators in cross-sector alliances that enrich corporate understanding of stakeholder concerns. (Arya & Salk, 2006) suggests that these organizational learning experiments can translate into globally responsible practices and processes that improve the content and effectiveness of voluntary corporate codes. Branding Global nonprofit brands are the world's new “super brands” (Laidler-Kylander, Quelch, & Simonin, 2007). Nonprofit organizations command unprecedented levels of trust, and nonprofit brand valuations are on par with major international corporations. Leaders and managers of nonprofits face new challenges in the stewardship of their brands. Based on current thinking in nonprofit management and detailed interviews with close to one hundred executives of ten international nonprofit organizations, Laidler-Kylander, et al. (2007) reported strategic lessons on brand building and brand valuation activities of international nonprofits. The multiple roles and stakeholders that global nonprofit brands must address make nonprofit brand building complex and challenging. In particular, differences between advocacy and relief organizations should be further explained. Despite the complexity, international nonprofit organizations may have an advantage over for-profits in leveraging public trust and brand communication. Advocacy organizations in particular successfully link brand and cause to good effect. The valuation of nonprofit brands is a new strategic challenge with significant appeal, but also significant concerns for international nonprofits. In addition to providing nonprofit leaders and managers with a better understanding of brand building activities, imperatives, and best practices in the field, this article outlines the opportunities and threats associated with the valuation of nonprofit brands. For example, in the case of US, Hemphill (2005) provides information on the Business for Diplomatic Action which was incorporated as a U.S. non-profit organization on January 1, 2004. The purpose of BDA is to mobilize American multinational corporations to build lasting and mutually enriching partnerships with host communities throughout the world (Hemphill, 2005). BDA president Keith Reinhard is working to have American multinationals work collectively to reduce anti-American sentiment overseas (Hemphill, 2005). Barriers!! See Ghemawat article to expand on this!!! Model of Integration FDI + Market Imperfections (internalization) + Moderators (Partnership-social resp-branding) = MODEL OF COLLABORATION?? New theoretical frameworks (Psych?) + IC (knowledge)+ ??? Recommendations/Conclusions …. blabla But, on the other side that makes more difficult for IB to relate to a specific discipline, sciences, and/or theory field, which again make the task of developing IB theory a very difficult task; the researcher has to be very careful in not fall in the error of trying to add all those components to its papers or investigations, and just try to limit that basic concept to certain few focused theories and specific cases. The same thing when NPO research… Then FDI… market … Moderatos overview Model integratios mention Future research needed… References Nonprofit organization. (2007, January). Bloomsbury Business Library - Business & Management Dictionary Drucker, Peter F. (1995) Managing the non-profit organization. Butterworth-Heinemann Toyne, B. (1989). International exchange: A Foundation of Theory building in International Business, JIBS, 20(1); 1-17. Ricks, D. A. 1985. International Business research: Past, Present and Future. Journal of International Business Studies. 16(2): 1-4. Sutton & Straw; 1995. What Theory is Not; Administrative Science Quarterly, September Pages 371-384. Shenkar, O.2004. One more time: international business in a global economy. Journal of International Business Studies 35, 161–171. Jones G & Khanna, T. 2006. Bringing History Back to International Business . Journal of International Business Studies 37, 453–468 Academy of International Business. Millar, Carla C. J. M.; Chong Ju Choi; Chen, Stephen (2004). Global Strategic Partnerships between MNEs and NGOs: Drivers of Change and Ethical Issues. Business & Society Review (00453609), Vol. 109 Issue 4, p395-414, 20p. Helmig, Bernd; Jegers, Marc; Lapsley, Irvine (2004). Challenges in Managing Nonprofit Organizations: A Research Overview. Voluntas: International Journal of Voluntary & Nonprofit Organizations, Vol. 15 Issue 2, p101-116, 16p. Pattberg, Philipp (2005). The Institutionalization of Private Governance: How Business and Nonprofit Organizations Agree on Transnational Rules. Governance, Vol. 18 Issue 4, p589-610, 22p. Arya, Bindu; Salk, Jane E. (2006). Cross-Sector Alliance Learning And Effectiveness Of Voluntary Codes Of Corporate Social Responsibility. Business Ethics Quarterly, Apr2006, Vol. 16 Issue 2, p211-234, 24p; Grobman, Gary M. (2007). An Analysis of Codes of Ethics of Nonprofit, Tax-Exempt Membership Associations. By:. Public Integrity, Vol. 9 Issue 3, p245-263, 19p, 5 charts. Laidler-Kylander, Nathalie; Quelch, John A.; Simonin, Bernard L. (2007). Building and valuing global brands in the nonprofit sector. Nonprofit Management & Leadership, Spring2007, Vol. 17 Issue 3, p253-277, 25p, 6 charts, 2 diagrams, 1 graph. Hemphill, Thomas A. (2005). Business Patriotism and the Global Reputation of the American Brand. Journal of Corporate Citizenship, Fall2005 Issue 19, p25-29, 5p. Boddewyn, Jean J (2007). The Internationalization of the Public-Affairs Function in U.S. Multinational Enterprises: Organization and Management by. Business & Society, Vol. 46 Issue: Number 2 p136-173, 38p; (AN 11940623) Rugman, A. M. (1985). Internalization is still a General Theory of Foreign Direct Investment. Welwirtschaftliches Archiv, 121 (3). Williamson, O. E. 1985. The economic institutions of capitalism. (New York: Free Press). Market imperfections approach. Dunning, John (1995). “The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions,” and “Reappraising the Eclectic Paradigm in an Age of Alliance Capitalism,” Journal of International Business Studies, 21 (3), 1990 and 26 (3), 1995.
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Sunday, March 15

  1. page Market returns in Kenya (Yvan) edited 1. Introduction The motivation Abstract I use an event study methodology in analyzing the impa…
    1. Introduction
    The motivation
    Abstract
    I use an event study methodology in analyzing the impact
    of thisthe AGOA on the market returns in Kenya. The paper starts by introducing the AGOA legislations and the NSE. The theoretical background lies in the effect of psychological elements on financial practitioners. These financial practitioners are the ones moving the stock market with buys and sells. The model is to examinea standard event methodology and recommendations for future studies are provided. This paper is just theoretical and will not actually get into the actual quantitative details.
    1. Introduction
    This paper examines
    whether the
    ...
    in Kenya.
    The AGOA is an American legislation that provided duty-free access for a large number of African products into the US market. Many free trade agreements have been signed in the last two decades. Free trade agreements are generally signed to remove tariffs, quotas and any other trade barriers. However, economists agree that free trade agreements bring freer trade, not free trade. There are always some trade barriers or restrictions that are not removed by free trade agreements.
    ...
    to the US.
    Kenya
    US [1]
    Kenya
    has been
    ...
    in Africa. The NSE is also said to be highly manipulated and corrupt like many institutions in Kenya. Many companies
    ...
    AGOA agreement.
    These Kenyan

    The stock market reacts to different events. Psychological elements impact financial practitioners and therefore move the stock markets. Behavioral finance is the field of Finance that deals with the psychological effects on the behavior of finance practitioners.
    Kenya has a special place in my heart. It is the country where I had my first professional, educational and social experiences away from home (Burundi). I also had a chance to visit the Nairobi Stock Exchange in 2003 during a school trip with classmates. These factors motivated me to choose Kenya and the NSE for this research.
    The rest of this paper is divided as follows: Section 2 describes the literature review of the research topic and Section 3 describes the theoretical background of the research topic. Section 4 and 5 describe the AGOA legislations and the Nairobi Stock Exchange. Section 6 describes the model, conclusions and recommendations for future research.
    2. Literature review
    The movements of stock markets have been studied in the past by finance researchers. Stock markets are markets where
    companies` daily returns formedderivatives and stocks are traded at an agreed price. Examples of stock markets include the dataNew York Stock Exchange (NYSE), the London Stock Exchange (LSE) and the Paris Bourse. The available literature review shows different reactions of stock markets to different events. Events such as press releases, rumors, panics or euphoria can psychologically affect traders, thus affect the stock market. Michayluk and Sanger (2006) studied the day-end effect at the Paris Bourse. They found that we usedthe day-end effect is significantly present and is approximately the double the magnitude found in our standard event methodology.the US data. Booth (2004) studied the relationship between presidential elections and market returns in the United States. There was no significant change of returns because of the presidential elections.
    Free trade agreements such as the AGOA have a special place in the field of international business.
    The event methodologyfield of international business is very broad and deals with topics that relate to cross-national business operations. The topics include political systems, culture, accounting systems, trade agreements and legal systems. The globalization of business has widelymade the field of international business more relevant.
    Free trade agreements reduce trade barriers, create jobs and reduce the prices of goods on a global scale. Economists have particularly
    been usedinterested in the fieldsuccesses and failures of financethese free trade agreements. Burfisher et Al (2001) concluded that the North American Free Trade Agreement (NAFTA) had small positive effects on the US economy and generally focusesrelatively large positive effects on Mexico. Abedini and Peridy (2006) said that regional trade has increased by 20% because of the movementsGreater Arab Free Trade Area (GAFTA).
    This literature has focused on changes
    of trade and economic patterns. Little has been done in evaluating the changes of equity returns because of a free trade agreement. Financial economists have analyzed the relationship between the North American Free Trade Agreement (NAFTA) and the movements of stock prices over a periodin NAFTA member countries (USA, Mexico and Canada).
    Aggarwal et Al (1998) studied the impact
    of time. We calculatedNAFTA on the abnormal returnsvaluation of stocksUS companies. Their study covered various industries on specific events in assessing the potential impactUS stock market and some of the AGOA.results were surprising. The datestelecommunication and auto industries, forecasted as NAFTA beneficiaries, experienced stock price declines at the signing of the treaties` signatures are the “events”.treaty. The events are:
    1. May 18th 2000
    2. August 6th 2002
    3. July 12th 2004
    The abnormal returns
    impact of NAFTA was different across industries.
    Most of the available literature
    on the AGOA is on the changes in trade volumes between the US and African eligible countries. Ikiara and Ndirangu (2003) noted that, within only two years of qualifying for AGOA, Kenya`s exports of clothing and investments in the textile sector have experienced remarkable growth. Shapouri and Trueblood (2003) also found that many African countries were successful in taking advantage of the US market opportunities through AGOA. Our study is therefore a contribution to the available literature on AGOA.
    3. Theoretical background
    I watch the stock market on a daily basis because of my duties at work. I can surely say that the movements of the stock market follow
    specific dateevents, rumors or event reflectannouncements. The week that ended on March 13th has been the investors` expectationsbest since November 2008. The Dow Jones and S&P 500 made a 10% return in 4 days. The NASDAQ jumped by 13%. These market indicators were showing 12-year lows (Dow and S&P) and 6-year low (NASDAQ) the week before the rally. The week started by the announcements by Bank of America, Citigroup and JP Morgan Chase that they made profits after the first two months of the year 2009. These announcements produced a psychological effect on investors and a market rally. It is not that the future performancemarket has recovered; economists agreed that it is just a rally in a bear market. For example, the Citigroup stock was trading at less than $1 before the rally week. The announcement generated a lot of buys and sells of the Citigroup stock. Our hypothesisInvestors, who bought the stock at a lower price, could speculate and make profits.
    There
    is a large literature on the reaction of the stock market to earnings announcements. Bernard (1993) confirmed that companies that report “good news” have their stock prices go up. After a “bad news”, the returnscompanies` stock prices would get a bump becausego down.
    Psychological effects on investors and the stock markets are very important. Behavioral Finance is the field
    of finance that deals with the AGOA agreement. We anticipate abnormal returns becauseinfluence of psychology on the benefitbehavior of accessingfinancial practitioners. Financial practitioners include portfolio managers, financial planners, investors, traders, investment bankers, stockbrokers etc.
    Psychological effects can impact
    the huge American market duty-free.
    The rest
    success of this paperinternal public offerings (IPOs) and investment decisions.
    The initial public offering
    is divided as follows: Section 2the process where a company (issuing firm) issues common stocks to the public for the first time under the assistance of the underwriting firm. It is one of the most common ways of raising capital. Finance researchers have identified three behavioral issues in IPOs:
    The initial underpricing: when the issue is underpriced
    and 3 describe the AGOA legislationsstock price will soar. The prices are generally lowered by the underwriters to attract potential buyers. Before the IPO, the issuing company does not have historical prices and few investors would be willing to invest in it. As investors buy the Nairobi Stock Exchange. In Section 4, we discussstock at the available literaturebeginning of the IPO, more investors would follow the trend. This behavioral issue creates benefits for all parties involved in the IPO.
    The long term underperformance: the price may overshoot fundamental value and give rise to long-term underperformance. The price will be higher and investors overreact to the positive events.
    The hot-issue market: There is a period where investor demand for IPOs is especially high. Shefrind (2000) said that, historically, the IPO market has moved in cycles for average initial returns and the volume of IPOs.
    Portfolio management decisions are also affected by psychological elements. Some investors, including me, are conservative and would focus
    on ourfixed-income securities (Certificate of Deposits, Bonds, Treasuries etc). Other investors are risk-takers and would invest in more volatile securities (mutual funds etc). Fixed income securities offer low returns at a low risk. Volatile securities offer potential high returns at higher risk.
    In investing, the higher the risk the higher the returns. Therefore the investor is in the game of balancing risk and return in the stock market.
    Stock market prediction is a topic in behavioral finance that relates to my
    research topic. Section 5 describes the methodology used
    Shefrin (2000) said that
    in our study, Section 6 discusses our resultspredicting the future, people tend to get anchored by salient past events. This would make people react as a consequence. Other investors would probably predict the stock market by following advices of newsletters or financial analysts. Stocks do well and Section 7 offersare consistently recommended by analysts. This phenomenon is called “momentum” in Finance.
    I also followed recommendations of
    the conclusionsfinancial research team at LPL Financial where I work. However, some of the study.
    2.
    recommendations create losses after picking the stocks.
    It is very hard to beat the stock market. There are many news and announcements that could mislead investors and drive the stock markets.
    4.
    AGOA Legislations
    ...
    Bill Clinton. Subsequent amendments (AGOA II, AGOA III and AGOA IV)At the time we had 34 eligible African countries. The eligible products would have to be made in the eligible countries. The less developed countries (Per capita GNP under $1500), under a special treatment, can export duty free apparel from fabric made anywhere in the world.
    Amendments
    were signed
    ...
    Bush thereafter.
    The

    The AGOA II expanded preferential access for imports from eligible African countries and also gave more powers to the US Congress in approving the eligible products. New products such as knit-to-shape products were made eligible under the AGOA II. At the request of African countries, Namibia and Botswana were now considered less developed countries. The most important AGOA II amendment was that it doubled the volume cap on duty free treatment for apparel products made in AGOA-eligible countries.
    US President Bush, yet again, amended the legislation by signing the AGOA III in 2004. Originally scheduled to be an 8-year agreement in the AGOA II, the legislation was extended for 7 years beyond 2008. At that time, African trade and economic numbers were starting to show the benefits of AGOA. Therefore, under the AGOA III, President Bush directed his administration and the US Congress to fully explore more bilateral investment agreements and a better economic cooperation between the US and African countries.
    The AGOA IV extended the apparel and textile duty-free provisions. African countries such as Kenya have fully taken advantage of this amendment, according to available trade data.
    The
    legislation liberalized
    ...
    anticipated benefits. Like
    In
    any free trade agreements,agreement, each party
    ...
    and apparel industryindustries considerably expanded
    ...
    since 2000.
    The

    The
    AGOA treaty
    ...
    African countries. SomeEven though US Customs are really tough in checking the products, some Chinese and Indian products are making their ways to the US through AGOA eligible countries.
    Some
    highly corrupt African countries (like Kenya) may be
    ...
    and India. Moreover,Kenya is regularly ranked as one of the ten most corrupt countries in the world, according to Transparency International[2]. Kenya had a 2.1 corruption index in 2008 (with zero being the most corrupt index).
    Moreover,
    the AGOA
    ...
    in America.
    3.

    5.
    The Nairobi
    ...
    two decades. The The NSE, founded
    ...
    in Africa. Exhibit 1 shows a list of all the companies listed on the NSE. The NSE`s
    ...
    for wealth creation.creation[3]. It continues
    ...
    public offerings. Equities,The expansion of these companies is really boosting the Kenyan economy.
    Equities,
    preferred shares,
    ...
    the NSE. The availability of more capital expands business activities, creates more jobs, creates more profits for company and grows the economy.
    Trading
    Trading at the
    ...
    the NSE.
    The Capital Market Authority of Kenya (CMA-K), a government entity, regulates and oversees the NSE.
    4. Literature review
    Today`s world is globalized, influences happen on
    6. Model, Conclusions & Recommendations
    These Kenyan companies` daily returns formed the data that I used in
    a global scale.standard event methodology. The globalization andevent methodology has widely been used in the free flowfield of goods have had many consequencesfinance and generally focuses on the world. Multinational corporations are able to raise capital in whatever markets they wish at attractive currency rates. We have seen an increasing numbermovements of joint ventures, mergers and acquisitions across borders.
    The current financial crisis started in
    the United States and is nowstock prices over a global downturn. People that bet on America have lost money. European nations are affected in many sectors. The Chinese industrial sector is downsizing and restructuring becauseperiod of time. I calculated the lackabnormal returns of demand from America. The 1987 world stock market crash startedstocks on specific events in Asian markets. As stock markets opened for trading acrossassessing the world (Europe and US), they immediately fell becausepotential impact of the crash.
    These examples show that financial markets
    AGOA. The dates of the treaties` signatures are interdependent across continents. Should we think that a free trade agreement automatically affects a stock market overseas? Can an American legislation impact the Kenyan market returns? Our study`s results should answer“events”. The events are:
    1. May 18th 2000
    2. August 6th 2002
    3. July 12th 2004
    4. December 20th 2006
    I chose
    these questions. Our study is quite interesting; it links international trade to financial markets.
    Free trade agreements such as the AGOA have a special place
    dates because they are truly important for African countries and America. Both parties were excited in the fieldsrenewal of economicsthe economic and international trade. They reduce trade barriers, create jobs and reducecooperation among them.
    The abnormal returns on a specific date or event reflect
    the prices of goodsinvestors` expectations on the future performance of the stock. My research questions are:
    1) Is there
    a global scale. Economists have particularly been interested inrelationship between the successesAGOA treaties` signatures and failures of these free trade agreements. Burfisher et Al (2001) concludedthe market returns in Kenya?
    2) Are there any other reasons
    that can explain the North American Free Trade Agreement (NAFTA) had small positive effects onKenyan stock market behavior at the US economy and relatively large positive effects on Mexico. Abedini and Peridy (2006) saidtreaties` signature dates?
    My hypothesis is
    that regional trade has increased by 20%the returns would get a bump because of the Greater Arab Free Trade Area (GAFTA).
    This literature has focused on changes of trade and economic patterns. Little has been done in evaluating the changes of equity
    AGOA agreement. I anticipate abnormal returns because of a free trade agreement. Financial economists have analyzed the relationship betweenbenefit of accessing the Northhuge American Free Trade Agreement (NAFTA) andmarket duty-free.
    I also think of other events such as
    the movements of stock prices9/11/01 terrorist attacks in NAFTA member countries (USA, Mexicothe US and Canada)
    Aggarwal et Al (1998) studied
    the 2002 Kenyan presidential election as significant events that could have had an impact of NAFTA on the valuation of US companies. Their study covered various industries on the US stock market and some ofreturns. These events happened during the resultssample period.
    On 9/11/01, four suicide attacks
    were surprising.carried out by Al-Quaeda terrorists in The telecommunicationUnited States. The terrorists intentionally crashed two planes in the World Trade Center (New York), another plane in the Pentagon and auto industries, forecasted as NAFTA beneficiaries, experiencedthe last plane in Pennsylvania. Historical data shows that the 9/11/01 attacks had an impact on stock price declinesmarkets across the world. For example, the Dow Jones Industrial Average, at the signing ofNew York Stock Exchange, fell 7.1% on the treaty. The impact of NAFTA was different across industries.
    Klein (2001) used an event methodology in assessing
    first day after the effectsattacks.[4]To the best of NAFTA eventsmy knowledge, we do not have a research on the Mexicanimpact of 9/11/01 and the Kenyan stock prices.market.
    In December 2002, Kenya witnessed a historical presidential election that saw a new president after 24 years of rule by President Daniel Arap Moi.
    The study analyzednew President Mwai Kibaki was elected on a total twenty two (22) events ofpolitical change, anticorruption and market-based economic platform. While I was pursuing my undergraduate studies in Kenya, I feared (like everyone in Kenya) that KANU (ruling party since independence) would rig the lengthy negotiation process. Only one event,election and expected some violent demonstrations or riots by opposition supporters. I decided to leave Kenya for about 2 months and would come back after the approvalelection of the free trade agreement bynew President. The opposition euphoria overpowered KANU and the US Congress, generated abnormal returns for Mexican firms.
    Most
    party conceded defeat on December 26th 2002. To the best of my knowledge, the available literature doesn’t have a study on the Kenyan presidential election and the market returns.
    My research examines the impact of
    AGOA is on market returns at the changes in trade volumes between the US and African eligible countries. A good reason might be thatfirm-level. Future studies could look at the impact of AGOA is a fairly recent legislation. Ikiara and Ndirangu (2003) noted that, within only two years of qualifying for AGOA, Kenya`s exports of clothing and investments inat the textile sector have experienced remarkable growth. Shapouri and Trueblood (2003)industry-level. I would also found that many African countries were successful in taking advantagesuggest future studies on:
    1) The impact
    of 9/11/01 on the US market opportunities through AGOA. Our study is therefore a contribution toAGOA trade volumes.
    2) The impact of
    the available literatureKenyan presidential election on AGOA.market returns
    [1] www.census.gov
    [2] www.transparency.org
    [3] www.nse.co.ke
    [4] www.wikipedia.com

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