Chapter 2

The Multinational Enterprise

Definition

A multinational enterprise is a company that is headquartered in one country but has operations in one or more other countries

According to UN there are 60,000 multinationals in the world

Top 500 accounts for 80% of all the world’s foreign direct investment (FDI)

430 are from the TRIADs i. e. US, EU and Japan(US: 185, EU 141, Japan 104)

Characteristics of MNEsResponsive to a number of

environmental forces including competitors, customers, suppliers, financial institutions and governments. In some cases the same forces are at work in domestic and foreign markets.

It draws on a common pool of resources including assets, patents, trade marks, information and human resources

It links together the affiliates and business partners with a common strategic vision i. e. all of the firms with whom the MNE works fit into the companies overall plan of what it wants to do and how it intends to go about implementing this strategy. E. g. GM and Toyota

The internationalization process

License (Licensor / Licensee) Export via agent or distributor Export through own sales representative or

sales subsidiary Local packaging or assembly FDI

Why multinational?

To diversify To tap growing world market for goods

and services To match increased foreign competition To reduce costs To overcome protective devices To take technological expertise

The Strategic Philosophy

Employment philosophy: Training more people for international assignments.

Alcatel reducing 29% workforce and reduce factories to a dozen, outsourcing to handle all production needs

Phillips downsizing by 7,000 jobs Disney is cutting 4,000 jobs

Multinationals in action: Cemex SA

Mexico’s largest cement maker Third largest cement maker in the world During 1990s Cemex acquired smaller cement

companies in Latin America and Carribean Basic strategy is to focus low income market In 1994 Mexican currency was devalued,

Cemex was benefited

Multinationals in action: Cemex SA

Bought cement companies in Columbia and Venezuela

Venezuela devalued its own currency Cemex improved the operation Reduced the workforce, integrated the

cement and concrete production operation and put in a new distribution system

Now it is expanding in Asia and Europe

Multinationals : Solectron

• Is an outsourcer, producing goods of other companies

• Bought Sony’s plant in Japan• Concentrated on customized electronics

technology, state of the art manufacturing, supply chain assistance

• Improved profitability to 12% from Sony’s 5%• Economies of scale allows it to produce and

deliver goods quickly and inexpensively

Multinationals: BMW

• One of the world’s best known car manufacturers

• Started to produce smaller cars for lower end market

• Rear wheel drive will give better feel of the road

• The company expects that the name and reputation will help to have a premium price

Multinationals: Levi Strauss

• It pulled out from China during mid 1990s due to human rights violations (Child labor, forced labor)

• It relied on local subcontractors for manufacturing

• The local contractor now promised to abide by the human rights regulations

• Levi Strauss is back in China

Multinationals: Canon Photo and printer firm

After many years the company has taken lead against firms like Leica in cameras and Xerox in photo copiers

Today Canon is one of the top three in all of its major business lines

Shifted manufacturing to Taiwan

Teamed with HP to build laser printer

Improving its core competencies in optical field

International expansion of 4 MNEs

1970 1085 2000

Ford 65 140 270Unilever 94 146 244Siemens 84 165 416Marubeni 16 44 170

Strategic Management and MNEs

Multinational affiliates are linked by a Strategic Plan. Four major functions

Strategy formulation Strategy implementation Evaluation Control

Steps in the Strategic Management Process

The reason that a firm is in existence Shell Oil, BP Amoco, Texaco are in energy

business and not oil business Unilever “Back to the Core business”

strategy. As a result it sold its businesses of transport, oil, milling, wallpaper, floor coverings, and turkey breeding

Strategic Management . . .

After determining the Mission MNE evaluate the external and internal environment (OT)

Then internal environment analysis: to evaluate the company’s financial and personnel strengths and weaknesses (SW)

Analyses helps the company to identify long range and short range goals

Strategic Management . . .

The plan is then broken down into major parts and each affiliate and department is assigned their goals and responsibilities

Thus the implementation process begins

Progress is periodically evaluated and changes are made accordingly

CNN

Gulf war I in 1991, CNN coverage was witnessed worldwide

BBC launched its 24 hour program in 1997

Followed by Murdoch’s Sky News from UK

Followed by Euronews from Switzerland

MSNBC from USA

CNNCNN’s new plan to capture the lost market:

The efficiency drive with 42 foreign bureaus and 1000 overseas staff

Inject new vigor into the mix and presentation to the news by making the news stories more dynamic and hard hitting