MNC Strategies

1
MNC Strategies

• Entry and expansion decision
• Intra-company relations
• Inter-company relations
• Dunning chapter 7-9, Caves chapter 3

2
Game plan

• Today concepts
• How does a firm expand abroad?
• Choice of entry mode
• Organization of company activities
• Tomorrow empirical studies
• Joint ventures or 100 foreign
• Greenfields vs acquisitions
• RD and intra-firm trade

3
Organization of a companys international
activities

• Value chains essential
• Ability to separate different stages of
  production essential for the emergence of MNCs
  (D, fig 7.1, 7.3)
• Several possible outcomes
• exporting or licensing
• sales and marketing subsidiaries
• production subsidiaries
• service contracts

4
Initial entry decisions

• Characteristics of assets and location specific
  factors important determinants of entry mode
• more advanced and valuable assets likely to be
  exploited through FDI
• home country market structure important
• host country characteristics essential
• (D, Exhibit 7.1)

5
Development over time

• Most MNCs start with exports and sales
  subsidiaries
• Subsequent development into assembly and
  manufacturing. Why?
• Few MNCs have so far become truly global or
  multidomestic. Many strategic functions
  traditionally located at headquarters / home
  country
• (D, fig 7.5)

6
Determinants of the type and degree of
internationalization

• Experience
• Economics of scale
• Flexibility of production process
• Trade policy
• Competition
• Transport costs
• Transaction costs

7
Organization of MNC operations

• Choice of organizational structure see your
  favorite Multinational Management course
• Economically important choice degree of
  centralization / decentralization. Why?
• (D, Exhibit 8.1-8.3)

8
Degree of centralization

• Varies with function. More in finance and
  international marketing than local marketing and
  employment
• Determinants
• Age
• Size
• Nationality
• Product characteristics

9
Inter-firm relations joint ventures and alliances

• Spectrum of possible cooperation modes with
  differences in equity stakes, time perspective,
  scope, and resource content (D, Table 9.2)
• Driven by cost considerations, competition, and
  regulations sharing risk or large fixed costs
  when competition is tough or when rules mandate
  alliances (D, Exhibit 9.3)

10
Joint ventures

• Increasingly common during past decades, perhaps
  because of rapid technology development
• Changing characteristics since 1960s and 1970s
  (D, Exhibit 9.1)
• Remaining problem areas transactions costs and
  need to agree plus competition policy

11
Strategic alliances

• Increase driven largely by high rate of
  innovations in new industries, cross-licensing
  and technology sharing common (D, Table 9.4)
• Many instances where governments participate or
  encourage alliances for strategic reasons

12
Summary choice of contractual arrangement

• Nature of competitive assets plus characteristics
  of firms, industries and countries determine the
  most effective contractual form for foreign
  activities
• Complex technologies promote wholly-owned
  affiliates, complex environments promote risk and
  cost sharing.
• (D, Table 9.1)