Chapter 1/Lecture 1

Multinational Enterprise (MNE)

• Characteristics of a MNE

  • Sustaintial direct investment in foreign countries (not just trading relationships of an export business) 

  • Active coordinated management of these offshore assets (not simply holding them as a passive financial portfolio) 

  • Strategic and org integration of operations located in diff countries

Whats different about MNE Management?

• Multiple operating environments

  • Diverse patterns of consumer preferences, channels, legal frameworks

• Political demands and risks

  • Need to mesh corporate strategy with host country policies

• Global competitive game

  • Multiple markets, new strategic options

• Currency fluctation and exchange risk

  • Economic performance measured in multiple currencies

• Org Complexity and diversity 

  • Need to manage complex demands across barriers of distance, time, language and culture

MNE Influence in the Global Economy

• Traditional Motivations: Resource seeking (secure supplies), market seeking (Fill capacity) 

• Emerging motivations: 

  • Competitive positioning 

  • Global scanning: access emerging trends, new tech and best skills

Evolving Theory of Foreign Direct Investment

• International capital theories: FDI driven by return equalization, portfolio diversification

• Location theories: FDI driven by countries comparitice advantage

• Product cycle theory: FDI driven by firms management of the global product life cycle

• Oligopolistic behaviour theories: FDI driven by firms search for, or defence of competitive advantage

• Internalization theory: FDI driven by orgs internal transaction efficiency

• Electic Theory (OLI): FDI driven by many shifting forces (Ownership, location and internalization)

Means of internalization prerequisites

• Foreign countries must offer location-specific advantages: To motivate the company to invest there.

• Company must have ownership-specific advantages or strategic competencies: To counteract its relative unfamiliarity with foreign markets.

• Company must have organizational capabilities: To get better returns from leveraging strengths internally rather than through external market mechanisms such as contracts and licenses.

• Classic Internationalization process: Incremental process of increasing commitment and understanding of foreign market 

• Today many companies short cut this process: In an internat age, today many companies are born global

Entry Mode Alternatives

• Export: Indirect, direct, controlled

• Contractual: license, franchise, management contract, cooperation agreements

• Investment: Acquisition, joint venture

Evolving mentality: International to transnational

• International mentality: MNE leverages its domestic capabilities worldwide; managed as a coordinated federation

• Multinational mentality: MNE overseas markets as portfolio of local opportunities; managed as a decentralized federation

• Global mentality: MNE views world as a single unit of analysis; operations managed as a centralized hub

• Transational mentality: MNE simultaneously responds to local needs, global demands, and cross-border learning opportunities; managed as an integrated network