16sep

Seminar 1 – Group 6:1The Dominating Multinational and the Coordinating Multinational

ERIK ABELSSON

DANIEL BARKMAN

VERA BATYALOVA

ANNELI BUCHT

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16sep

AgendaThe timeline

Two different theories

Practical examples

Summary

Break

Discussion

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47

1900 - 1950

20101900 1960 1970 1980 19902000

16sep

1950

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion

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988

First MNCs

World War II

Portfolio theory

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20101900 1960 1970 1980 19902000

16sep

1950

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion

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47988

1891

1960”How is it that firms can establish and run a business operation in a host country in competition with local firms in a situation where the foreign investors suffer from a lack of knowledge of how to do business in that country?”

-Stephen Hymer

20101900 1960 1970 1980 19902000

16sep

1950

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion

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47988

1891

1960Industrial Organisation Theory

A theory of Foreign Direct Investment

The Dominating Multinational

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20101900 1960 1970 1980 19902000

16sep

1950

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion

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47988

1891

The Dominating MultinationalMarket Imperfection

Monopolistic Advantages

Removal of conflicts

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20101900 1960 1970 1980 19902000

16sep

1950

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion

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47988

1891

1970

Hymer’s theory started to

develop into new theories•

ca 4000

20101900 1960 1970 1980 19902000

16sep

1950

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion

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47988

1891

ca 4000

The new route

”Why is this operation carried out by the firm itself, and not sold to a local firm through the issue of, for instance, a license?”

20101900 1960 1970 1980 19902000

16sep

1950

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion

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47988

1891

ca 4000

1970-1980The Internalization Theory

1. Coordinating interdependet economic activites

2. Firm-specific assets is a key to the MNCs existens

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20101900 1960 1970 1980 19902000

16sep

1950

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion

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Transaction Cost EconomicsFour components:

-Uncertainty

-Small-numbers bargaining

-Bounded rationality

-Opportunism

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20101900 1960 1970 1980 19902000

16sep

1950

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion

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The Coordinating Multinational

vs.

The Dominating Multinational•

20101900 1960 1970 1980 19902000

16sep

1950

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion

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Market Imperfection

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Coordinating

Transactional cost (uncertainty, opportunism ,etc)

Cost minimizing behavior

Natural imperfection

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Dominating

Firms special advantage (patent, barriers to entry ,etc)

Monopolistic advantage

Structural imperfection

20101900 1960 1970 1980 19902000

16sep

1950

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion

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Control

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Coordinating

Minmizing transaction costs

Coordinate transactions

Hierarchy

Internalize transactions

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Dominating

Raising Revenues

Monopolistic Advantage

Hierarchy

”Removal of conflict”

20101900 1960 1970 1980 19902000

16sep

1950

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion

The role in society

•Dominating

Market Power andMonopolistic Advantages

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Coordinating

Best at organizing certain economic activities

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16sep

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion

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Practical Examples

16sep

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion

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Retail industry

Founded 1943

298 warehouses in 26 countries

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13sep

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion

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16sep

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion

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Competitive advantages

The timing in history

Design, flat packs and selfassembly

Marketing and branding

Location specific advantage

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16sep

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion

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”Economic Affairs Secretary Arvind Mayaram said the Foreign Investment Promotion Board has cleared Ikea’s proposal to invest €1.5 billion ($1.9 billion) to set up 25 stores in India.”

-Forbes

13sep

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion

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16sep

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion

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Considering the good and bad consequences of MNCs to society, does one outweigh the other?

Short discussion

16sep

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion

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• Motor vehicle industry

Founded 1908

Brands: Chevrolet, Cadillac, Opel, Baojun

+212 000 employees

Acts on all six continents

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16sep

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion

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Cost minimizing behavior

Difference in location

Transactional costs

Internalize market

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16sep

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion

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Tried the market through outsourcing

Rising transactional costs

Problem with knowledge transfer

More and more internalized

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16sep

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion

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Summary

16sep

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion

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15 m break

After the break, you will work together in your seminar groups during the discussion part.

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16sep

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion

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Discussion

16sep

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion•

Discussion

Both the dominating and the coordinating theory are based on market imperfection. Do you consider market imperfection to be the main stimulus for the establishment of multinational firms?

Question 1:

16sep

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion•

Discussion

How would you describe IKEA from the coordinating theory? How would you describe GM from the dominating theory?

Question 2:

16sep

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion•

Discussion

When Forsgren talked about “the beauty” and “the beast”, is it the choice of theory which decides our perception of the MNCs?

Question 3:

16sep

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion•

Discussion

Internalization theory argues that MNC´s have positive impacts on the welfare and society. Do you see any danger with multinationals growing uncontrolled?

Question 4:

16sep

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion•

Discussion

Are MNCs strong enough to stand the test of time? Will they live on forever?(Consider the waves of globalization and GM’s bankruptcy)

Question 5:

16sep

History

Dominating perspective

Coordinating perspective

Examples

Summary

Break

Discussion

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Summary