MNEs A good definition:

1. MNEs A good definition: An enterprise having a substantial direct investment in foreign countries engaged in active management of such offshore assets and regarding those operations strategically and organizationally as integral part of it.

2. Motivations for international operations: Capitalize on all potential advantages Traditional: • Secure key supplies. Eg: ONGC in Russia • Seek markets abroad in pursuit of economies of scale: Mahindra in US • Seek access to low cost factors of production. CEAT in Sri Lanka These push factors can be related to the product Life Cycle Theory

3. Emerging motivations – Beyond overseas sales and production operations: Set of forces I • Increasing scale economies • expanding R&D investments • shortening product life cycles II • global scanning and learning capability (on raw materials, markets, products, technologies) III • Competitive positioning (eg. Cross-subsidisation of markets)

4. Process of Internationalization: Countervailing strategic advantage of an MNE over a domestic company: Superior knowledge or skills as regards technology, marketing, R&D, Scale economies or some other part of its value chain Options for entry in markets abroad Exports Licensing Franchising Joint venture Wholly owned subsidiary

5. Uppsala Model of internationalization: Go through cycles of investment treating market entry as a learning process: Step I : Initial commitment of resources to the foreign market to know about customers, competitors and regulatory conditions. II : On this basis, evaluate current activities and opportunities for additional investment.

6. III: Make a subsequent resource commitment, eg. buy out local distributor or invest in a manufacturing plant. IV: With additional knowledge and several cycles of investment, develop capability and market knowledge to compete in the foreign market.

7. STRATEGIC MANAGEMENT A critical part: Deciding how a company should compete abroad. All companies make money through value creation. 3 general strategies for value creation: • Differentiating products or services from those of competitors (eg. Mercedes Benz.) • Cost leadership (eg. ACER of Taiwan) • Niche strategy – Focusing a specific line of products/services relative to competitors who operate more broadly (eg. PORSCHE of Germany for Upscale sports cars. Slogan “There is no substitute”)

8. Regardless of this basic approach, companies are A LINKED SET OF VALUE CHAINS. So, companies can add value by • Changing any of their primary activities (manufacturing, marketing) • Changing any of their supporting activities (materials procurement, HR) either alone or in combination. So a company’s international strategy is about choices on - How value chain activities are configured (eg. Where do value chain activities happen? ) and Coordinated (eg. Are dispersed activities tightly controlled from HQ? or Do they remain under local control?)

9. OFTEN COMPANIES CHANGE THESE ACTIVITIES TO IMPROVE THEIR CORE COMPETENCIES (i.e: skills that are hard for competitors to imitate) CORE COMPETENCIES CAN BE LOCATED ANYWHERE IN THE FIRM’S VALUE CHAIN AND PROVIDE THE BASIS FOR INTERNATIONAL COMPETITIVENESS. Examples: • Logistical execution - Wal-Mart • Product innovation - 3M • Manufacturing Quality - Toyota • Location Economies: cost effective availability of benefits exclusive to locations. • Scattering certain value chain activities to locations that offer such benefits can provide a source of competitiveness. • But sustainable competitive advantage comes from: ability to constantly change and adapt which allows many individual firms to outperform their competitors.

10. Success factors for cos in specific industries: Processed Foods • Taste • Sales promotion • Price • Distr. Channels • Brand identification Pharmaceuticals • Product efficiency • Product innovation • Patents held / filed • Co. image Autos • Styling • Service • Quality • Price • Fuel efficiency • Distr. system

11. Strategic Approaches used by MNEs:(International, multidomestic global and transactional) Diverse MNEs are networks of relationships among many dispersed organizations, each with somewhat different goals and perspectives (eg: GE) Understanding strategy in this context involves figuring out - the internal movements of information, people, resources and products through the MNE’s entire web of linkages.

12. Perspectives on MNE Strategy Evolution of strategic role of MNEs’ foreign operations: 4 stages/ strategic approaches/ mentalities: International :Overseas operations considered as appendages. Technology and other knowledge transferred from parent company to overseas operators.

13. (Localization Strategy) Multidomestic: Multiple, nationally responsive strategies by the company’s worldwide subsidiaries Global : Treats the world as its unit of analysis through global products and manufacture on global scale. Transnational: Combines local responsiveness with global-scale competitive efficiency.

14. Note: An MNE might operate with any one of these strategic approaches, depending on the industry, the company’s strategic position and a variety of other factors. More likely, most companies will bear some characteristics of each of these approaches.

15. Exercise: Organisational set-up for the four strategic approaches.

16. Process of developing international strategy – A template: Step 1 – The Mission Statement Step 2 – Conducting a SWOT (environmental scanning) Step 3 – Evaluate alternatives, set strategic goals Step 4 – Developing implementation tactics and plans Step 5 – Putting control and evaluation procedures in place.

17. CUSTOMER & MAJOR STAKEHOLDERS MACRO-ENVIRONMENT A Model:DETERMINATION OF A FIRM’S COMPETITIVE POSITION IN INTERNATIONAL BUSINESS HANS MUHLBACHER et al SUCCESS FACTORS • COMPETITOR ANALYSIS • COMPETITIVE ENVIRONMENT • ASSESSMENT OF • CORPORATE POLICY • CORPORATE STRATEGY • MANAGEMENT SYSTEMS • OPERATIONS • INTERNAL ANALYSIS • CORPORATE POLICY • CORPORATE STRATEGY • MANAGEMENT SYSTEMS • OPERAITONS • DISTINCIVE COMPETENCIES • PROFILE OF STRENGTHS & WEAKNESSESS • COMPARISON OF PROFILES OF STRENGTHS & WEKNESSES COMPETITIVE ADVANTAGES

18. Advantages and disadvantages of different foreign market entry options.

20. Other types of International Strategic Alliances than JVs. • Production alliance - Motivation may include desire to acquire complex manufacturing expertise from each other or reducing costs of production. • R&D alliance - to develop new products or technologies • Financial alliance - partners reduce their financial exposure in risky projects by sharing costs • Marketing alliance - partners share services or expertise in marketing related areas in ways that generate additional profits for both.

21. Why SAs? • Local partner’s knowledge of the market • Government regulations • Sharing risks • Sharing technology • Economies of scale • Low-cost raw materials or labour

22. Key considerations in the SA decision: • Could other participation better satisfy strategic objectives? • Does the firm have management and capital resources to contribute to the SA? • Can a partner really benefit the company’s objectives? • What is the expected payoff of the venture?

23. Pre-alliance process: Building an SA • Partner selection: Strategic and organisational analysis. • Avoidance of wrong choices and unrealistic expectations. • Determination of scope of the alliance. • Opt for simplicity and flexibility.

24. Managing an SA • Structuring the interface. • Managing knowledge flows. • Adopt appropriate structure for governance. Perspectives on SAs • Viewed as second best option. • Alliances need not be permanent. • Flexibility is essential. • An internal knowledge network is also a must for organisational learning.

25. Evolution of the strategic role of an MNE in terms of its overseas operations: International (ethnocentric) Multinational (polycentric) Global (geocentric) Transnational (dispersed but specialized resources and activities integrated into an interdependent worldwide network) For readings: Characteristics and aspects of organizational architecture of these strategies. Challenges and opportunities for each of these strategies.

26. Going global: first movers and late movers Advantages of first movers: • Preempt rivals and capture demand by establishing a strong brand name. • Capture scale economies ahead of later entrants • Benefit from a lower cost structure which later entrants find difficult to match. • Create high switching costs making it difficult for later entrants to win business.

27. Disadvantages: • Pioneering costs can be heavy. • Chances of survival better if a firm enters after others have already created potential. • Regulations can change to the benefit of later entrants.

28. Factors that may prevent companies from venturing abroad: “Liabilities of Origin” – Christopher Bartlett & SamanthraGhoshal • Feeling trapped “in prison of local standards” and of strong domestic demand for products • Being unaware of the company’s global potential • Limited exposure to global competition, leaving companies overconfident or blind to potential dangers

29. But successful emerging MNEs have overcome these constraints through: • Push from home – eg. SAMSUNG from South Korea and Thermax from India • Pull from abroad – eg. Ranbaxy of India

30. Strategies for Late Movers: (Bartlett & Ghoshal) • Benchmark and sidestep eg. Jollibee of Philippines against McDonald • Confront and Challenge eg. BRL Hardy against established wine exporters in Europe • Learning how to learn • Protect the past • Build the future

31. Exercise: How MNEs can manage conflicting demands of • global integration • local responsiveness • world wide learning

32. Focus on MNE strategy and Organization Main preoccupations : • Internal consistency and cohesion of the organizational set-up • Compatibility of organizational features with the strategy of the company or the fit between strategy and organization • Fit between company strategy and organization on the one hand and the competitive conditions in the market

33. These make demands on; Structure of the company in its operational aspects : Decision-making Division into subunits Coordination / integration Control systems and incentives Processes Organizational culture Capacity to change, innovate and learn

34. Structuring International Business Operations Organizational structure typically changes: As firms expand their international operations or modify their strategic approach. A common sequence: An Export Department International Division Structure with either Geography or Product Line as the basis for sub-division Global Area Structure with countries or regions as basis Or Global Product Structure where a company organizes around a diversified set of products or businesses Global Matrix Structure

35. Where geographic and product division structures overlap and decision making is shared between product and geographic managers. Thinking beyond the Matrix structure.

36. Organizational structure typically changes: When firms expand their international operations or They modify their strategic approach.

37. I A common first step: An export manager with some staff Or An export department Functional Divisions Product Division Geographical Structure Area Structure Global Product Structures OR

38. Global Area Global Product Structure Structure Global Matrix Structure Flexible Matrix Structure OR

39. Typical firm Structure: I . Firm with a narrow product line:

40. II. Firm with a wide product line: Note: Export manager and staff may report directly to CEO. CEO FINANCE PRODN HR MARKETING EXPORT DEPT Small Appliances Large Appliances Industrial Equipment Financial Services

41. III. International Division on Product Structure Basis:

42. IV. International Division on Area Structure Basis: Example: Harley – Davidson of U.S

43. V. The Global area structure: CORP.STAFF Line Management CEO MARKETING FINANCE EXPORT DEPT R&D PRODN N. AMERICA EUROPE L. AMERICA ASIA INDIA CHINA INDONESIA

44. V. The Global Product Structure: CORP.STAFF Line Management CEO MARKETING FINANCE PERSONNEL R&D PRODN Product Divn. A Product Divn. B Product Divn. C Product Divn. E Product Divn. C EUROPE ASIA MIDEAST AFRICA INDIA CHINA INDONESIA Marketing Production Finance

45. VI. The Global Matrix Structure : CEO MARKETING FINANCE PERSONNEL R&D PRODN Europe Tractors Asia Other area & Product Divisions GM, Tractors, Europe GM, Tractors, Asia

46. Political Risk Rating Method –A Model (IMR)

49. Approaches to managing risk

50. MODEL FOR ECONOMIC VIABILITY PROFILEWITH WEIGHTS FOR DIFFERENT SETS