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Definition of MNE
Substantial DFI (Direct Foreign Investment)Active management of offshore assetsCan be in manufacturing or service Can be wholly owned or joint venture operations
* Differences between joint venture and strategic alliances
Beyond Multinational
The Globally Integrated EnterpriseSamuel J. Palmisano,
Foreign Affairs, May/June 2006
Summary: A new corporate entity based on collaborative innovation, integrated production, and outsourcing to
specialists is emerging in response to globalization and new technology. Such "globally integrated enterprises" will end up reshaping geopolitics, trade, and education.
Evolving Global Business Environment
1. Free trade? (Managed trade?), removal of trade barriers, (GATT), WTO – Globalization (also see Ch2 –BG)
2. Changing attitudes of the developing countries, more favorable DFI policies
3. Regional economic integration –EU, NAFTA, ASEAN, APEC….
4. Technological advancement – impacts on strategy and structure
5. Competition for capital, borderless global operations – immense investments and new technologies force MNCs to look for global markets
6. Globally integrated supply chain, greater interdependence
Alvin Toffler [1990], “international firms are moving toward stateless corporations, no longer US, Japanese, or German; rather, they are non-national…”
Robert Kuttner [1990], “MNCs are…stateless, globalized corporations with operations, shareholders, and managers all over the world, largely indifferent to location except on the grounds of economic efficiency”
Robert Reich [1992], The Work of Nations: Preparing Ourselves for the 21st Century capitalism.
Lester Thurow [1999], Building Wealth: The New rules for Individuals, companies and Nations.
F. Fukuyama [1989], “The End of History”, Foreign Affairs
T. Freidman’s “Golden Arch Theory of Conflict Prevention” – see Friedman’s book of The Lexus and The Olive Tree [1999]
(see lecture 1 for “changing thoughts in the 21st century)
Thoughts leading to Globalization in the late 20th century
Additional Issues
Safety- - “Managing the World Safe for Markets” HBR, 8/2003,
A. Chua - World on Fire, A. Chua, 2003
Cross-Border, Cross- Cultural Business Ethics - “Emerging Threat:Human Rights Claims” E. Schrage,
HBR, 8/2003 (Chapter 8 – see slide # 25)
http://blogs.iht.com/tribtalk/business/globalization/
Why Companies Expand Internationally?
Motivations (BG –Ch. 1)
1. Traditional Motivations (1950-1980)
2. Emerging Motivations (1980 - )
3. Beyond Motivations
1. Traditional Motivations (1950-1980)
Secure key supplies
Market seeking
Searching low-cost production fac
2. Emerging Motivations (1980 - )
Increasing scale economics
Escalating R&D investments
MNCs’ global scanning and learning capabilities
3. Beyond Motivations
a. Location-specific Advantages
b. Strategic competencies
Strategic advantage – ownership-specific advantages such as patented technology, product differentiation, economies of scale, brand names, managerial skills, etc……
c. Organizational capabilities
The firm’s organizational capabilities that could employ its strategic advantages better than others (see K. Ohmae’s article in BG’s book for “insiderization”)
Underlying theories of International Expansion( see other IB texts)
Theory of International Trade (theory of Comparative Advantage)
Theories of DFI
Theory of International Product Life Cycle
International Product Life Cycle
R. Vernon [1966]Stage 1- innovative country, new product, home market
Stage 2 - mature, standardized design, lower price, other industrialized countries joined production
Stage 3 - DFI in developing countries, export back to home and other markets
Stage 4 – technological diffusion, full globalization
Types of International Business Operations
Import/Export
Counter-trade
Barter, Counter-purchase, Buyback, Switch-trading
Turnkey projects
Licensing/Franchising
Joint Venture
minority ownership, 50-50 JV, majority ownership
Wholly owned Operation
MNE’s International Expansion Strategies
LicensingManagement ContractStrategic AllianceJoint VentureMerger AcquisitionBuild from Scratch
MNCs’ Evolving Mentality (Contd..)
Bartlett & Ghoshal International mentality • Ethnocentric, home country oriented
Multinational mentality• Polycentric, host country oriented
Global mentality• Centocentric
Transnational mentality• Geocentric
IHRM example of MNCs’ evolving mentality
ExpatriatesHost nationalsEthnic expatriatesCosmopolitan personnel
The Future of the Transnational – an Evolving Global role
Ch. 8 basically deals with MNE’s social responsibilities, which are further complicated by:
- operating in culturally different markets and subject to different legal constraints.
- growing pressure of sustaining competitiveness ( much of it comes from greater efficiency – the exploitive MNE)
- growing discontents with globalization - rising nationalism (pressure to localize)