Upload
susanna-gallagher
View
252
Download
8
Tags:
Embed Size (px)
Citation preview
Chapter 4: The Multinational Enterprise
Chapter 4
The Multinational Enterprise
International Business
Oded Shenkar and Yadong Luo
Chapter 4: The Multinational Enterprise
Do You Know?
• Who are the players in the international business arena?
• How can you tell the degree of a firms internationalization?
• Will a higher degree of internationalization lead to higher corporate performance?
• What advantages and disadvantages do MNEs have when they operate overseas compared to local firms?
Chapter 4: The Multinational Enterprise
Do You Know?
• What are the typical features of developing country MNEs?
• How do they differ from developed country MNEs?
Chapter 4: The Multinational Enterprise
What is a Multinational Enterprise
• The internationally committed company – has at least one plant or joint venture abroad.
• The internationally leaning company – has foreign sales and/or a representative office and/or a licensing agreement abroad.
• The multidomestic firm – has multiple international subsidiaries independent of headquarters.
Chapter 4: The Multinational Enterprise
What is a Multinational Enterprise
• The transactional firm – has subsidiaries that fulfill a variety of strategic roles typically performed by HQ.
• The multinational firm – engages in FDI and owns or controls value adding activities in more than one country.
• The global firm – has integrated international subsidiaries controlled by headquarters.
Chapter 4: The Multinational Enterprise
What is a Multinational Enterprise
• Multinational Enterprise (MNE) – a firm with foreign direct investment, service or manufacturing, over which it maintains effective control.
• International firm – a firm engaged in trade activities but without an FDI component.
• Small and Midsize International Enterprises (SMIE) – Most of these firms do not have FDI presence and do not qualify as MNEs
Chapter 4: The Multinational Enterprise
The Degree of Internationalization
• Transnationality Index (TNI) – the level of MNE internationalization.
• Calculated as the average of three ratios:– Foreign assets to total assets– Foreign sales to total sales– Foreign employment to total employment
Chapter 4: The Multinational Enterprise
The Degree of Internationalization
Exhibit 4-1: Average transnationality of the world’s 100 largest MNEs 1990-1998
Chapter 4: The Multinational Enterprise
History of the MNE
• MNEs can be traced to the Phoenician, Carthaginian, Greek, and Roman empires
• Date back to Assyria around 2000 B.C.• Faced the same obstacles as today’s
MNEs:– Tariffs– Nationalistic opposition to foreign trade and
investment– Using competitive advantage and market
power
Chapter 4: The Multinational Enterprise
The World’s Largest MNEs
• In 1998, the top 100 non-financial MNEs accounted for–13% of all foreign assets–19% of all foreign sales–18% of all foreign employment.
Chapter 4: The Multinational Enterprise
The World’s Largest MNEs
Exhibit 4-3: Home country of the world’s largest 100 MNEs by TNI and foreign assets
Chapter 4: The Multinational Enterprise
The World’s Largest MNEs
Exhibit 4-4: The largest 10 U.S. MNEs (at the end of 1999)
Chapter 4: The Multinational Enterprise
The Industry Composition of MNEs
Exhibit 4-5: Industry composition of the largest 100 MNEs
Dominated by a limited number of industries.
Chapter 4: The Multinational Enterprise
The Industry Composition of MNEs
Exhibit 4-6: The largest 5 MNEs in each industry
Chapter 4: The Multinational Enterprise
The Growth of Service MNEs
• There has been significant growth of MNEs in service areas, due to:– Economic transformation – developed
nations shifting into service economies– Globalization and liberalization of
regulatory systems – “open skies” agreements, accounting standards, flexible store hours, etc.
– Communication advances – allow MNEs to coordinate knowledge-intensive operations across borders.
Chapter 4: The Multinational Enterprise
The Growth of Service MNEs
Exhibit 4-7: The world’s top 20 banks 2001 (based on total assets)
Note the U.S.
Chapter 4: The Multinational Enterprise
The Growth of Service MNEs
Exhibit 4-8: The world’s top airlines, 2001
Chapter 4: The Multinational Enterprise
The MNE in the Public Eye
• The MNE has been both lauded and vilified for its impact on host and home countries.
• Among the more positive attributes are:– MNEs provide knowledge, capital,
technology, expertise, global affiliations, contributions to national productivity and exports, innovation, employment, and societal change.
Chapter 4: The Multinational Enterprise
The MNE in the Public Eye
• Among the negative attributes are:– the MNE is perceived as a threat to national
sovereignty– have unfair advantages over local competition– exploit government incentives at the expense of
taxpayers– limit knowledge transfer to developing nations– exploit critical national and natural resources– move on when their exploitation is finished
Chapter 4: The Multinational Enterprise
The Competitive Advantage of the MNE
• The MNE generally has large capital, human, brand, and technological resource base, it can use many countries.
• Global spread provides MNEs with:– diversification so they can compensate for
SBU low performance and uncertainty– helps them overcome entry barriers and
high start up costs.
Chapter 4: The Multinational Enterprise
MNE’s Capabilities
• MNE Capabilities– Firm capabilities
• Familiarity with national culture, industrial structure, and government requirements
• Existing relationships with customers, suppliers, regulators
– Strategic capabilities• Technological assets (patents, trade secrets,
proprietary designs, product development)
– Managerial skills– International experience
Chapter 4: The Multinational Enterprise
MNE’s Capabilities
• Capability Deployment– MNE’s must transfer critical capabilities
unavailable to local players.– Technological and financial capabilities are
more transferable than organizational skills.
• Capability Upgrading– Learning capability – the capacity to
generate ideas and acquire new knowledge.
– More transferable than firm resources.
Chapter 4: The Multinational Enterprise
The MNE from Emerging / Developing Economies (DMNE)
• MNEs from developed nations typically dominate global business.
• DMNEs, however, are making inroads.• DMNEs face the following constraints
and advantages:– Resource constraints.– Knowledge, sophistication constraints.– Sheltered environment constraints.– Home government support.– Flexibility
Chapter 4: The Multinational Enterprise
The Largest Developing Country MNEs
• DMNE Scale– Median DFI holding for a top 50 DMNE in
1998 was $1.5 billion, versus $14 billion for a global 100.
• DMNE Industries– Largest group consists of diversified firms– Electronics, petroleum, and food/beverage
• The National Affiliation of DMNEs– Dominated by South, Southeast, and East
Asia
Chapter 4: The Multinational Enterprise
The Largest Developing Country MNEs
Exhibit 4-10: Global expansion of Cemex SA 2001
Chapter 4: The Multinational Enterprise
The Largest Developing Country MNEs
Exhibit 4-11: Industry composition of the largest 50 MNEs from developing countries
Chapter 4: The Multinational Enterprise
The Largest Developing Country MNEs
Exhibit 4-12: Country composition of the largest 50 MNEs from developing economies
Chapter 4: The Multinational Enterprise
Obstacles Facing MNEs from Developing Economies
• Resource Constraints– Capital investment, lack of reputation,
brand recognition
• Lack of Knowledge– Experience in foreign operations, lack of
production, marketing and management skills
• Sheltered Environment– Protected by duties, lack of knowledge and
expertise from conducting international business
Chapter 4: The Multinational Enterprise
DMNE Advantage in Global Markets
• Home Government Support– Impact of the DMNE on the national
economy– Shields the firm from the marketplace,
hampering its capability development
• Flexibility– Lower production scale permits flexibility
and adaptation– Less investment sunk in older plants and
technologies
Chapter 4: The Multinational Enterprise
Typical Features of DMNEs
• Internationalization Patterns– To develop ownership advantages– To serve as intermediaries– To overcome import quotas in developed markets– To reduce risk via diversification
• Focus on Other Developing Markets– More likely to have greater share of FDI in other
developing markets.
• Reliance on Third Parties– To compensate for resource shortages
Chapter 4: The Multinational Enterprise
Typical Features of DMNEs
• Governance– Less likely to be publicly traded, and tightly
controlled
• Industry Domain– More likely to be in manufacturing
• Bargaining Power– Lack bargaining power in the host country
• Strategy– More likely to compete on price than on
product differentiation
Chapter 4: The Multinational Enterprise
What is an SMIE?
• The SMIE is a “small to medium sized organization”
• SMIEs account for approximately 94% of all international firms.
• They often face serious obstacles to internationalization.
Chapter 4: The Multinational Enterprise
What is an SMIE?
Exhibit 4-14: Small companies can be international
Chapter 4: The Multinational Enterprise
Obstacles to SMIE Internationalization
• Scale and Transaction Constraints
• Access to Capital
• Lack of Knowledge
• Lack of Market Power
• Vulnerability to Intellectual Property Violations
Chapter 4: The Multinational Enterprise
Obstacles to SMIE Internationalization
Exhibit 4-15: Entry barriers to international trade for Minnesota SMIEs
Chapter 4: The Multinational Enterprise
SMIE Internationalization Features
• International Motivation– Push factors – competitive pressures in its
domestic market– Pull factors – make foreign locations more
attractive– Management factors – managerial
commitment and resources devoted to international activity
– Chance factors – unforeseen circumstances that create internationalization opportunities
Chapter 4: The Multinational Enterprise
SMIE Internationalization Features
• Internationalization Patterns– Often not incremental, often “leapfrog” into
international markets
• SMNE Exporter Profile– 97% of U.S. exporters are small
businesses
• Exporter Demographics
• SMIE Foreign Investment Profile– At present relatively small, but growing
Chapter 4: The Multinational Enterprise
SMIE Internationalization Features
• Chance Expansion– SMIEs respond to incidental opportunity
• Nature of FDI by SMIEs– Emphasis on Developed Markets
• More likely to invest in developed markets
– Selective Globalization• Tend to focus on one link in the supply chain
and on a selected market
– Strategy• Often adopt niche strategies• Rely more on cooperative strategies
Chapter 4: The Multinational Enterprise
Born International
• A business organization that from inception seeks competitive advantages from the use of resources and sale of output in multiple countries.