International business economics strategy
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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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International business economics strategy

International Business Economics & Strategy

The Multinational firm


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...


International business economics strategy

Mode of foreign operations: trade-off control/commitment


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 models competition with local firms smith 1987

Strategic FDI models: Competition with local firms (Smith (1987))


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 mnes

Strategic FDI models: Competition among MNEs


Strategic fdi models competition among mnes1

Strategic FDI models: Competition among MNEs


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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