MNCs, TAM/SAM/SOM

Context: modern lecture format and student responsibilities

  • Description of a large, modern lecture hall in a university business school (e.g., UC Berkeley): cohorts of six to seven hundred students.

  • The lecturer presents for about one hour; after that students must study on their own, using books and other materials to catch the fine details not covered in the lecture.

  • Emphasis on self-study for the details and the importance of holding each other accountable; shift away from a mindset of “the firm will make money.”

  • The instructor emphasizes that the world is now more complex and requires deeper individual engagement and critical thinking rather than broad, superficial statements.

Defining multinational companies (NACs)

  • NAC stands for a multinational company: any company that operates across national borders in multiple ways.

  • A company is not a multinational merely because it ships products internationally (e.g., selling via Amazon into another country); it must operate across borders with multiple-country offices, administrative functions, logistics networks, or production in several countries.

  • Example distinctions:

    • Foxconn (Taiwanese): factories in multiple countries (India, China, Southeast Asia) – production across borders qualifies as multinational operation.

    • Coca-Cola: production facilities, distribution networks, administration facilities, and franchises/agents in other countries – also qualifies as a multinational because of multi-country operations beyond simple shipping.

  • Core point: operating in more than one country in a variety of ways (not just exporting) defines a multinational.

Four main business goals for multinational companies

  • Growth

  • Survival

  • Profit

  • Market share

  • These goals guide choices about entering new markets, expanding production, and developing new products or services across borders.

Ansoff Matrix (ASOP) and multinational strategy

  • Question: where do MNCs fit on the Ansoff Matrix? Options include Market Development, Product Development, Diversification, and Mergers/Acquisitions (M&A).

  • Market Development: same products, new markets (classic example: entering new geographic markets).

  • Diversification: new products in new markets (the firm expands into something different, potentially with a different audience).

  • Product Development: new products in existing markets (less about new markets, more about new offerings to current customers).

  • The instructor emphasizes that the Ansoff Matrix is not rigid; firms can sit in blended positions (e.g., partly market development and partly diversification) and the matrix is a heuristic rather than an absolute rule.

  • Example prompts discussed:

    • If a firm adds a new product line to existing markets, that’s product development.

    • If a firm launches a new product in a new market, that’s diversification or a mixture of market development and diversification depending on the specifics.

    • Not all “new product in new market” moves are automatically diversification; the classification depends on audience, channel, and strategic fit.

  • The discussion uses practical examples to probe what counts as diversification and what doesn’t (see case examples below).

Case discussions: joint ventures, strategic alliances, product development, diversification

  • Example: Swatch and Mercedes collaboration (referred to as a joint venture in context):

    • For Swatch (a watchmaker), entering a new, arguably unrelated business area was diversification (new product and new audience/sales channel).

    • For Mercedes (an automaker), the collaboration with Swatch was more like product development (a new product line that fits with existing dealership channels, i.e., selling in car dealerships).

    • The collaboration carried risk-sharing and potential synergy; the risk profile differed for each party, illustrating how the same venture can be viewed differently by each participant.

  • Example: Lamborghini and LEGO seats

    • The conversation considers whether such a collaboration would be a joint venture, a strategic alliance, or another form of collaboration.

    • If the collaboration produced something that wasn’t owned by the original companies as their core product, it might be more akin to a strategic alliance rather than a formal joint venture.

  • Concept of “product development” vs “ diversification” vs “market development”: these are not rigid buckets; some collaborations sit in the middle and involve elements of more than one category.

  • The instructor also mentions potential examples like IKEA expanding into housing or services, illustrating how diversification can blur into new business lines.

Key takeaways about classification and analysis

  • The Ansoff Matrix is a useful framework but not a strict rule; real-world cases often involve blurred lines between categories.

  • When writing answers or case analyses, you should articulate how a move transitions from one category to another (e.g., what makes it clearly diversification vs. market development).

  • Consider audience, product characteristics, marketing strategy, and distribution channels when classifying a move.

  • In practice, some moves involve partial product development and partial market development, reflecting the complexity of modern business ecosystems.

Practical examples and nuanced cases

  • Disney example: previously operated in one geography, now has a streaming service with global reach; this reflects diversification through a new product (streaming) expanding into new markets.

  • Mercedes vs Swatch example: Swatch broadens into a new type of product (timepiece-adjacent collaboration) with a different audience, while Mercedes uses the collaboration to broaden its product ecosystem without a fundamental shift in core business.

  • The overall lesson: in a blurred modern business landscape, it’s common to see overlapping strategies that cannot be cleanly separated into one of the four Ansoff categories.

Why multinational companies become multinational (true reasons)

  • Cost considerations: lower production costs through location choices; reduce expenses by leveraging cheaper labor or cheaper inputs in other countries.

  • Regulatory considerations: shifting operations can be driven by regulatory environments, including environmental rules, labor laws, and other policy environments.

  • Economies of scale and market access: expanding into large or rapidly growing markets provides access to more customers and potential economies of scale.

  • Example rationale described in class:

    • If a single-country operation costs a lot to build a complex machine, spreading production to multiple countries can reduce overall costs via cheaper labor and other efficiencies.

    • Historically, regulators have sometimes tolerated or overlooked certain environmental or labor concerns if the broader economic benefits (jobs, growth) were large. The speaker notes examples like China’s electronics/groundwater pollution issues and shifts in manufacturing locations across Asia and beyond.

  • Real-world pattern: production relocations occur as costs and regulations change; multinational strategies help firms stay profitable and competitive over time.

  • Ethical and practical implications: these moves can lead to worker exploitation and environmental harm if not managed with strong governance; a critical consideration in strategy formation.

Market sizing framework: TAM, SAM, SOM

  • Definitions (as discussed):

    • TAM: Total Addressable Market – the total size of the market if you could sell to everyone who could possibly buy your product.

    • SAM: Serviceable Available Market – the portion of TAM that is realistically serviceable given your product type and business model.

    • SOM: Serviceable Obtainable Market – the portion of SAM that you can actually capture considering competition, distribution, and execution.

  • The relationship among these markets: ext{TAM} \ge ext{SAM} \ge ext{SOM}

  • Synonyms used in the discussion:

    • TAM = Total Accessible Market

    • SAM = Serviceable Accessible Market

    • SOM = Serviceable Obtainable Market

  • India example (illustrative):

    • TAM in India: ext{TAM}_{India} = 1.4 imes 10^{9} people

    • SAM in India: approximately half the TAM, so ext{SAM}{India} \approx 0.5 imes ext{TAM}{India} \approx 0.7 imes 10^{9} = 7 imes 10^{8} people

    • SOM in India: a smaller subset, perhaps around 1 imes 10^{8} ext{ to } 1.5 imes 10^{8}} people (roughly a hundred million range)

  • Regional nuance: the framework applies within countries and regions (e.g., within a country, different cities or areas have different TAM/SAM/SOM due to density, income, and infrastructure).

    • Example comparison: Taipei City vs Taicang in Taiwan/China; Taipei may present a much larger TAM for certain products than Taicang due to market density, urbanization, and consumer purchasing power.

  • Practical use: TAM/SAM/SOM are tools to compare market potentials across countries or regions and to prioritize expansion investments.

  • Important caveat: not all large markets are equally attractive; the sum (S) can vary significantly by product type, distribution capabilities, regulatory constraints, and logistics.

Market potential calculations: how to apply the framework

  • To assess a new market, consider:

    • Population size and demographics

    • Penetration potential and customer willingness to buy

    • Distribution channels and logistics feasibility

    • Regulatory and cost environments

    • Competitive landscape

  • Practical takeaway: even if TAM is large, SAM and SOM can be relatively small due to logistics, competition, or product misfit; this helps allocate resources efficiently.

Examples of market dynamics and ethical considerations

  • Global supply chains have moved across countries in response to cost, regulatory environments, and market access; this includes shifts across generations of manufacturing from traditional hubs to cheaper or more permissive regions.

  • The discussion mentions fast fashion in the UK and low-cost production in various countries, illustrating how cost pressures can shape global sourcing and production decisions.

  • Nike and Walmart negotiations: cost pressures can lead to compromises that create ethical concerns; the speaker notes that firms may “tend to turn a blind eye” to certain labor or environmental issues to maintain pricing and market access.

  • The moral dimension: expansions that prioritize cost and access can have societal impacts (labor rights, environmental degradation), which must be weighed in strategic planning.

Quick synthesis and study prompts

  • How would you classify a hypothetical collaboration (e.g., a car company partnering with a streaming service to offer in-car streaming) on the Ansoff Matrix? Explain whether it’s more about market development, product development, diversification, or a combination.

  • Compare and contrast the Swatch-Mercedes example and the Lamborghini-Lego example in terms of who benefits most and why classification can vary by perspective.

  • Explain why the Ansoff Matrix is a heuristic rather than a strict taxonomy, using real-world examples where moves sit in overlapping categories.

  • Given a country with TAM = 1.4 imes 10^{9} people, SAM ≈ 7 imes 10^{8}, and SOM ≈ 1.5 imes 10^{8}, discuss what this implies for market entry strategy and resource allocation.

  • Discuss ethical considerations that should accompany multinational expansion and how governance structures can mitigate potential harms.