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MNC Strategies. Entry and expansion decision Intra-company relations Inter-company relations Dunning chapter 7-9, Caves chapter 3. Game plan. Today: concepts How does a firm expand abroad? Choice of entry mode Organization of company activities Tomorrow: empirical studies

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mnc strategies

MNC Strategies

Entry and expansion decision

Intra-company relations

Inter-company relations

Dunning chapter 7-9, Caves chapter 3

game plan
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
  • R&D and intra-firm trade
organization of a company s international activities
Organization of a company’s 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
initial entry decisions
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)

development over time
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)

determinants of the type and degree of internationalization
Determinants of the type and degree of internationalization
  • Experience
  • Economics of scale
  • Flexibility of production process
  • Trade policy
  • Competition
  • Transport costs
  • Transaction costs
organization of mnc operations
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)

degree of centralization
Degree of centralization
  • Varies with function. More in finance and international marketing than local marketing and employment
  • Determinants:
    • Age
    • Size
    • Nationality
    • Product characteristics
inter firm relations joint ventures and alliances
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)
joint ventures
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
strategic alliances
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
summary choice of contractual arrangement
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)

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