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International Business Economics & Strategy. The Multinational firm. Where to get more information. Caves, 96, Multinational Enterprise and Economic Analysis, Cambridge University Press Dunning, 92, Multinational Enterprises & Global Economy, Addison Wesley, London

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where to get more information
Where to get more information..
  • Caves, 96, Multinational Enterprise and Economic Analysis, Cambridge University Press
  • Dunning, 92, Multinational Enterprises & Global Economy, Addison Wesley, London
  • Journal of International Business Studies, Symposium Multinational Enterprise and Economic Analysis, 1998
  • Roberts & Berry, Entering new businesses, Sloan Management Review, 1985.
multinational integration
Multinational integration
  • Traditional Eclectic OLI Paradigm (Dunning)
    • Ownership advantages : Proprietary technology - Brand name…..
    • Internalisation advantages : Transaction costs,…..
    • Location advantages : Low labour cost, taxation...
strategies of mne
Strategies of MNE
  • Traditional OLI
    • National Resource Seeking
    • Market Seeking
    • Efficiency Seeking
  • Trend towards Technoglobalisation
    • Strategic Asset Seeking :geographic diversification becomes itself an ownership advantage
strategic asset seeking
Strategic Asset Seeking

Innovation requires increasingly more global sourcing: sensing new market and technology trends worldwide, while adequately responding to them through generating new ideas which are then implemented around the world

Implications for the

  • role of subsidiaries
  • organisational structure of the MNE
changing innovative strategies of transnational companies
Changing innovative strategies of transnational companies;

MNEs as a result of knowledge creation

  • R&D centralization vs decentralization
  • “center for global” “local for local”
  • control, economies of scale, close to demand/supply

Know-how flows from HQ to SUB

MNEs as a source of knowledge creation

  • “locally leveraged” and “globally linked” innovations
  • More active role of subsidiaries (depending on technological capabilities, strategic importance of market…)

Know-how flows between HQ and SUB: from home-base exploiting to home-base augmenting

multinational decisions to leverage superior knowledge base o
Multinational decisions to leverage superior “knowledge base” (O)
  • Transfer of know-how: own vs market: licensing/franchising vs own control (=10%) (I)
    • transactions costs
      • monitoring, asymmetric info to assess value, small number bargaining…..
    • Competitive considerations
multinational decisions to leverage superior knowledge base o1
Multinational decisions to leverage superior “knowledge base” (O)
  • Which markets to supply
    • size, willingness to pay, relatedness
    • follow customers/competitors
  • Which markets to locate : locational advantages (L)
    • availability, quality, price of inputs (raw material, labour, know-how, taxation…
    • follow customers/competitors
multinational decisions to leverage superior knowledge base o2
Multinational decisions to leverage superior “knowledge base” (O)
  • Buy inputs or produce internally: international subcontracting
    • transaction costs, resource access..
  • Mode of foreign operations : acquisition vs de novo vs joint venture
    • speed, resource access, capacity control, synergies...
selecting the mode of entering new businesses in general trade off control commitment
Selecting the mode of entering new businesses in general:trade-off control/commitment

Less commitment modes in uncertain/unfamiliar markets

different dimensions of uncertainty familiarity matrix
Different dimensions of uncertainty: familiarity matrix

Market Change

New,

unfamiliar

New,

familiar

Base

Base

New,

familiar

New,

Unfamiliar

Technology change

familiarity and commitment control
Familiarity and commitment/control

If changes are

Choose

internal development;

acquisitions

small

joint ventures;

collaboration

moderate

significant

initially venture capital;

educ acquisitions & jvs,

then use acquired know-how

to leverage new modes

options and familiarity
Options and familiarity

Market

new;

unfam

JV with

familiar

partner

VentCap;

Educ Acq

VentCap;

Educ Acq

Internal

Venture;

Acquis

new;

fam

Internal D;

Acquis;

JV fam par

Vent Cap;

Educ Acq

Internal D;

Acquis

Internal D;

Acquis;

Licensing

base

JV &

Alliances

Technology

base

new;

fam

new;

unfam

uncertainty
Uncertainty
  • Real Options Theory stress advantage of waiting in uncertain environments
  • Low commitment modes to allow for switching: alliances
  • Information gathering modes : alliances
importance of competition strategic motives
Importance of competition: Strategic motives
  • Pre-emptive investment (to deter local entry, rival MNEs)
  • Follow the leader (vs First Mover)
  • Mutual forbearance with foothold entry (multi-market contact)
  • Issue of TIMING/COMMITMENT
strategic fdi competition with locals
Strategic FDI: competition with locals

Note:

A: MON-EXP; B:MON-FDI; C:DUO-EXP; D:DUO-FDI

FDI requires G;

DOM E requires F+G

Given s,t :

B>A, DF>CF, CD>DD

Foreign

EXP

FDI

Domestic

Domestic

NE

E

NE

E

(A , 0)

(CF, CD - F- G)

(B - G , 0)

(DF - G , DD - F - G)

Foreign firm moves first

Source: Smith (1987)

strategic fdi competition with locals1
Strategic FDI: competition with locals

Dominant choice of FDI

DF-G > CF and B-G>A

Strategic choice of FDI

CD-F-G>0 & DD-F-G <0

(DOM: E if EXP; NE if FDI)

B-G>CF

(FOR: FDI because DOM: NE; even if B-G < A

Foreign

EXP

FDI

Domestic

Domestic

NE

E

NE

E

(A , 0)

(CF, CD - F- G)

(B - G , 0)

(DF - G , DD - F - G)

Foreign firm moves first

strategic fdi models competition among mnes2

V(D,D)

V(D,D)

V(D,M)

V(M,D)-R

V(M,D)-R

V(D,M)

V(M,M)-R

V(M,M)-R

Strategic FDI Models:Competition among MNEs

FIRM 2

DOM

MNE

DOM

FIRM 1

MNE

importance of governments public strategy
Importance of governments: Public Strategy

IS FDI wanted ?

  • local producers’ interests
  • consumers, employment, gov revenue, spillovers

How to induce FDI ?

  • Trade policy t: Tariff-jumping FDI
  • Incentives : Obsolescing bargain
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