Transcript International Business in an Age of Globalization

Chapter Four
three
The Multinational
Enterprise.
Learning Concepts – Chapter 4
1. Identify the major payers in the international
business arena.
2. Differentiate the degrees of MNE
internationalization.
3. Identify the advantages and disadvantages
MNEs possess.
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Chapter Four
three
The Multinational
Enterprise.
Learning Concepts – Chapter 4 (cont)
4. Know there are several essential capabilities all
MNEs must possess.
5. Identify the typical features of developed and
developing country MNEs.
Copyright, John Wiley and Sons, Inc.
Types of Multinational
Enterprises
 The international committed company – has at
least one plant or joint venture abroad.
 The international leaning company – has foreign
sales and/or a representative office and/or a
licensing agreement abroad.
 The multidomestic firm – has multiple
international subsidiaries independent of
headquarters.
 The global firm – has integrated international
subsidiaries controlled by headquarters.
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Types of Multinational
Enterprises
 The transactional firm – has subsidiaries that
fulfill a variety of strategic roles typically performed
by HQ.
 The multinational firm – engages in FDI and
owns or controls value adding activities in more
than one country.
Copyright, John Wiley and Sons, Inc.
Types of MNEs
1. The traditional Multinational Enterprise (MNE)
is a firm with FDI that owns or controls value
adding activities in more than one country.
2. The Small and Midsize International Enterprise
(SMIE) are small and mid-sized enterprises
engaged in international business.
3. MNEs from Developing and Emerging
Economies (DMNE) consist of MNEs from
emerging economies.
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World’s largest MNEs
In 1998, the top 100
non-financial MNEs
accounted for 13%
of all foreign assets,
19% of all foreign
sales, and 18% of all
foreign employment.
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The Growth of Service MNEs
Service organizations have entered the MNE
population for the following reasons:
 Economic transformation.
 Globalization and liberalization of regulatory
systems.
 Advances in information technology and
communications.
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The Image of the MNE
The MNE has been both lauded and vilified for its
impact on host and home countries.
Among the more positive attributes are that MNEs
provide knowledge, capital, technology, expertise,
global affiliations, contributions to national
productivity and exports, innovation, employment,
and societal change.
Copyright, John Wiley and Sons, Inc.
The Image of the MNE
The MNE has been both lauded and vilified for its
impact on host and home countries.
Among the negative attributes, are that the MNE is
perceived as a threat to national sovereignty, have
unfair advantages over local competition, exploit
government incentives at the expense of taxpayers,
limit knowledge transfer to developing nations,
exploit critical national and natural resources, and
move on when their exploitation is finished.
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The Competitive Advantage of
MNEs
The MNE generally has large capital, human, brand,
and technological resource base, it can use many
countries. Global spread provides MNEs with
diversification so they can compensate for SBU low
performance and uncertainty and helps them
overcome entry barriers and high start up costs.
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MNE Capability
MNEs have a great many dynamic capabilites.
MNEs have:
 Familiarity with national culture, industrial structure,
government requirements, existing relationships with
suppliers, customers and regulators.
 Strategic capabilities like technological assets,
patents, trademarks, designs, products, and process
innovation.
 Managerial skills.
 International experience.
Copyright, John Wiley and Sons, Inc.
Types of MNEs – The DMNE
MNEs from developed nations typically dominate global
business. DMNEs, however, are making inroads.
DMNEs face the following constraints and
advantages:
 Resource constraints.
 Knowledge, sophistication constraints.
 Sheltered environment constraints.
 Home government support.
 Flexibility.
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DMNEs Typically
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Focus on Developing Markets.
Rely on third parties.
Have private governance.
Are likely to be manufacturing oriented.
Lack the extensive bargaining power of MNEs.
Are more likely to compete on price rather than
product differentiation.
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The SMIE
The SMIE is a “small to
medium sized
organization”
 SMIEs account for
approximately 94% of
all international firms.
 They often face serious
obstacles to
internationalization.
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SMIE Obstacles
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Integration with international business culture.
Lack of information.
Cost and financing.
Qualified employees.
Regulations and tariffs.
Language skills.
International experience.
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SMIE International Advantages
SMIEs have been successful in entering the global
marketplace – among their advantages:
 Motivation – push factors, pull factors, management
factors, and chance.
 Patterns – SMIE internationalization is typically not
incremental.
 Profile – the proportion of inter-company resource
transfers is higher than MNEs.
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