The Multinational enterprise (MNE) -...
Transcript of The Multinational enterprise (MNE) -...
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Slide 2.1
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
The Multinational enterprise (MNE)
Chapter 2
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Slide 2.2
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
The Multinational enterprise (MNE)
• Objectives
• The nature of multinational enterprises
• Strategic management and multinational
enterprises
• A framework for global strategies: the FSA/CSA
matrix.
• It’s regional, not flat.
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Slide 2.3
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Objectives
• Describe the characteristics of MNEs.
• Explain the internationalization process.
• Explain why firms become MNEs.
• Discuss the strategic philosophy of these firms.
• Introduce a country/firm framework for examining
a firm’s competitiveness.
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Slide 2.4
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
The Multinational enterprise (MNE)
• A company headquartered in one country but with
operations in one or more other countries.
• MNEs often downplay the fact that they are
foreign-held.
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Slide 2.5
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
The nature of MNEs
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Slide 2.6
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Table 2.1 The world’s largest 500 multinational enterprises, 2007Source: Authors’ calculations and adapted from Fortune, The Global 500, July 23, 2007
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Slide 2.7
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Characteristics of MNES
• Affiliates must be responsive to a number of
important environmental forces, including
competitors, customers, suppliers, financial
institutions, and government.
• Draw on a common pool of resources, including
assets, patents, trademarks, information, and
human resources.
• Affiliates and business partners are linked
together by a common strategic vision.
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Slide 2.8
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Figure 2.1 The multinational enterprise and its environment
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Slide 2.9
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
The internationalization process
• Internationalization: The process by which a
company enters a foreign market.
• Not all international business is done by MNEs.
Indeed, setting up a wholly-owned subsidiary is
usually the last stage of doing business abroad.
• Why do businesses wait to set up wholly-owned
subsidiaries?
– Foreign markets are risky.
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Slide 2.10
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
A typical internationalization process
• Initially, the firm might license patents, trademarks or
technology to a foreign company in exchange for a fee or
royalty.
• The firm sees a potential for extra sales by exporting and
uses a local agent or distributor to enter a foreign market.• The firm may use exporting as a “vent” for its surplus
production and might have no long-term commitment to
the international market.
• As exports become more important, the MNE will set up
an office for its sales representative or a sales subsidiary.• The firm might set up local packaging and/or assembly
operations.
• Finally, the firm will set up a wholly-owned subsidiary
(FDI).
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Slide 2.11
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Figure 2.2 Entry into foreign markets: the internationalization process
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Slide 2.12
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Why do firms become MNEs?
• to diversify themselves against the risks and
uncertainties of the domestic business cycle;
• to tap the growing world market for goods and
services;
• in response to foreign competition;
• to reduce costs;
• to overcome barriers to entry into foreign markets;
• to take advantage of technological expertise by
manufacturing goods directly.
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Slide 2.13
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
The strategic philosophy of MNEs
• MNEs make decisions based on what is best for
the overall company, even if this means
transferring jobs to other countries and cutting
back the local workforce.
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Slide 2.14
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Table 2.2 The international expansion of four MNEsSource: United Nations, World Investment Report 2001 (Geneva: United Nations Conference on Trade and Development, 2001)
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Slide 2.15
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Strategic management and MNEs
• The strategic management process involves four
major functions: strategy formulation, strategy
implementation, evaluation, and the control of
operations.
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Slide 2.16
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Figure 2.3 The strategic management process in action
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Slide 2.17
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Basic mission
• The following questions must be answered to
determine the firm’s basic mission:
– What is the firm’s business?
– What is the reason for its existence?
For example,
• Royal Dutch/Shell; BP Amoco and Texaco are in the
energy business, not the oil business.
• AT&T, Sprint and MCI are in the communications
business, not the telephone business.
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Slide 2.18
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Analysis of the external and
internal environment• The goal of external environmental analysis is to
identify opportunities and threats that will need to
be addressed.
• The purpose of an internal environmental analysis
is to evaluate the company’s financial and
personnel strengths and weaknesses.
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Slide 2.19
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Formulation of objectives
and overall plan • Internal and external analyses will help identify
long-term (2–5 years) and short-term (< 2 years)
goals.
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Slide 2.20
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
The implementation process
• Once goals have been established, the plan is
then broken into major parts and each affiliate
and department is assigned goals and
responsibilities.
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Slide 2.21
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Evaluation and control of operations
• Progress is periodically evaluated and changes
are made in the plan to accommodate changing
circumstances and new information.
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Slide 2.22
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Framework for global strategies:
the FSA/CSA matrix
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Slide 2.23
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Building blocks in
our international business• There are two basic building blocks in an
international business course.
– Firm-specific advantages (FSAs): a unique
capability proprietary to the organization
� It may be built upon product or process technology,
marketing or distributional skills.
– Country-specific advantages (CSAs): country
factors
� Natural resource endowments (minerals, energy
and forests), the labour force and associated
cultural factors, etc.
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Slide 2.24
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Figure 2.4 The basic components of international business
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Slide 2.25
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Figure 2.5 The FSA-CSA matrix
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Slide 2.26
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
The competitive advantage matrix
• Quadrant 1: resource-based and/or mature,
globally-oriented firms producing a commodity-
type product � cost leadership (Improving FSA
can make them move to quadrant 3.)
• Quadrant 2: inefficient, floundering firms � no
alternative but to exit or to restructure
• Quadrant 3: follow any of the generic strategies
� both cost leadership & differentiation
• Quadrant 4: differentiated firms with strong FSAs
in marketing and customization �
differentiation (the CSA is not relevant)
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Slide 2.27
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Dunning’s “eclectic” theory of MNEs:
OLI framework• Ownership factors (O): FSAs
• Location factors (L): CSAs
• Internalization factors (I): FSAs
• O and I, in practice, are integrated features of
FSA management within the MNE that cannot be
decoupled in strategic decision making.
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Slide 2.28
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
It’s regional, not flat
• The world is flat by Thomas Friedman, the New
York Times journalist.
– Today, a large proportion of international business
takes place through offshoring leading to globalization.
• The world is not flat!
– There remain strong barriers as a business attempts to
cross the boundaries of triad regions.
– The liability of inter-regional foreignness.