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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)