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Foundations of Multinational Financial

Management Alan Shapiro

John Wiley & SonsPower Points by

Joseph F. Greco, Ph.D.California State University,

Fullerton

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Corporate Strategy and Foreign Direct

Investment

Chapter 16

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THE THEORY OF THE MULTINATIONAL CORPORATION

I. THE THEORY OF THE MULTINATIONAL CORPORATIONA. The MNC as an Oligopolist: Why FDI?

1. When is FDI justified?2. Internalization3. Market Integration

a. Verticalb. Horizontal

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THE THEORY OF THE MULTINATIONAL CORPORATION

B. Financial Market Imperfections1. Hypothesis

2. Diversification Effect of the MNC

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THE STRATEGY OF THE MNC

II. THE STRATEGY OF THE MNCA. Three strategies:

1. That of the Innovation-based MNC

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THE STRATEGY OF THE MNC

Strategies (con’t)2. The mature MNC

a. the importance of economies of

scale and

b. economies of scope

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THE STRATEGY OF THE MNC

3. The senescent MNCa. global scanning

capability

b. the role of rationalization and integration.

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THE STRATEGY OF THE MNC

4. FDI and Survivala. Cost reductionb. Economies of scalec. Multiple sourcingd. Keeping domestic

customers

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DESIGNING A GLOBAL EXPANSION STRATEGY

III. DESIGNING A GLOBAL EXPANSION STRATEGY

5 Necessary Elements:1. Awareness of profitable

investments-building competitive

advantage2. Selecting a mode of entry

-evaluate systematically

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DESIGNING A GLOBAL EXPANSION STRATEGY

5 Necessary Elements (con’t)

3. Adjusting the Effectiveness of the EntryMode

- continual auditing4. Using appropriate evaluation criteria5. Estimating the longevity of competitive

advantage:a. Develop competitive strength transferable overseas.b. Not easily duplicated