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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. 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

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  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 • R&D and intra-firm trade

  3. 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

  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)

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