Transcript Document
Slide 1.1
Chapter 1
Regional and global strategy
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.2
Introduction
• •
International business:
the study of transactions taking place across national borders for the purpose of satisfying the needs of individuals and organizations.
Multinational enterprises (MNEs):
a company headquartered in one country but having operations in other countries.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.3
MNE activity
• Most MNE activity can be classified into two major categories: (1) Trade (exports and imports): More than 50% of all trade is made by the world’s largest 500 MNEs.
(2) Foreign direct investment (FDI): 80% of all FDI is made by the world’s largest 500 MNEs.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.4
Trade and investment
• •
Trade
consists of exports and imports: –
Exports:
goods and services produced in one country and then sent to another country.
–
Imports:
goods and services produced in one country and bought in another country.
Foreign Investment:
consists of companies investing funds to start or improve operations in another country.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.5
The triad
• Most global transactions take place within and between three key regions: the United States, the European Union and Japan; these are referred to as: the ‘triad’.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.6
The triad: the United States (US)
• The US has the largest economy in the world with a GDP of over $10 trillion. • The US is part of the North American Free Trade Agreement (NAFTA) with Canada and Mexico. • The US economy is significantly larger than that of its two trading partners and is therefore a triad member on its own.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.7
The triad: the European Union (EU)
• The EU (or EU27) is composed of the countries in the EU15 (Austria, Belgium, Denmark, Finland, Germany, Greece, France, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the UK) and twelve new, mainly Central European, countries that joined in 2004 and 2007. • The collective GDP of the EU is greater than that of the US and Japan.
• The EU27 is the world’s largest importer and exporter.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.8
The triad: Japan
• Japan is the largest economy in Asia.
• Japan is the 4th largest importer and 4th largest exporter in the world.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.9
Today’s international environment
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.10
International business environment
• The international business environment has changed rapidly in recent years as a result of: – an overall slowdown of triad economies; – increased trade liberalization through trade agreements; – improvements in technology; – the emergence of SMEs.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.11
Slowdown of triad economies
• In the late 1990s and early 2000s, the United States, the EU and Japan all experienced a reduction in economic activity, which in turn decreased international business activity.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.12
International trade regulation
• An important international business trend has been the emergence of regional and global trade and investment liberalization and international regulation.
– The World Trade Organization (WTO).
– General Agreement on Tariffs and Trade (GATT).
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.13
The world trade organization
• Established on January 1, 1995.
• An international organization that deals with rules of trade among member countries.
• Enforces the provisions of the General Agreement on Tariffs and Trade (GATT).
• Acts as a dispute-settlement mechanism.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.14
The general agreement on tariffs and trade (GATT)
• Established in 1947 to liberalize trade and to negotiate trade concessions among member countries. • Today, the WTO is enforcing the provisions of the GATT.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.15
Improved technology
• More powerful and affordable technology has promoted fast easy worldwide communication and improved production capabilities enabling organizations to operate more effectively in the international marketplace.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.16
Small and medium-sized enterprises (SMEs)
• The definition of SMEs varies according to the nation. In general, it refers to companies with between 11 and 500 employees with sales of less than $5 million.
• MNEs often purchase from SMEs. This is because their specialized workforces, innovation and technology allows SMEs to provide goods and services more efficiently than if the MNE were to source these internally.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.17
Globalization and strategic management
Regional triad strategies
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.18
Misconceptions about MNEs
Common
misconceptions
about MNEs: – MNEs have far-flung operations or earn most of their revenues overseas.
– MNEs are globally monolithic and excessively powerful in political terms.
– MNEs produce homogeneous products for the world market and through their efficient techniques are able to dominate local markets everywhere.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.19
Misconceptions about MNEs (Continued)
In fact
, – MNEs earn most of their revenues in their home regions.
– The largest 500 MNEs are not spread around the world but clustered around the triad.
– These MNEs engage not in global competition but in triad/regional competition; this rivalry effectively eliminates enduring political advantage.
– MNEs adapt their products for the local market.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.20
Chapter 2
The Multinational enterprise (MNE)
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.21
The Multinational enterprise (MNE)
• Objectives • The nature of multinational enterprises • Strategic management and multinational enterprises • A framework for global strategies: the FSA/CSA matrix.
• It’s regional, not flat.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.22
Objectives
• • • • •
Describe
the characteristics of MNEs.
Explain
the internationalization process.
Explain
why firms become MNEs.
Discuss
the strategic philosophy of these firms.
Introduce
a country/firm framework for examining a firm’s competitiveness.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.23
The Multinational enterprise (MNE)
• A company headquartered in one country but with operations in one or more other countries.
• MNEs often downplay the fact that they are foreign-held.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.24
The nature of MNEs
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.25
Table 2.1 The world’s largest 500 multinational enterprises, 2007
Source
: Authors’ calculations and adapted from
Fortune
, The Global 500, July 23, 2007 Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.26
Characteristics of MNES
• Affiliates must be responsive to a number of important environmental forces, including competitors, customers, suppliers, financial institutions, and government.
• Draw on a common pool of resources, including assets, patents, trademarks, information, and human resources.
• Affiliates and business partners are linked together by a common strategic vision.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.27
Figure 2.1 The multinational enterprise and its environment
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.28
The internationalization process
• Internationalization: The process by which a company enters a foreign market.
• Not all international business is done by MNEs. Indeed, setting up a wholly-owned subsidiary is usually the last stage of doing business abroad.
• Why do businesses wait to set up wholly-owned subsidiaries?
– Foreign markets are risky.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.29
A typical internationalization process
• Initially, the firm might license patents, trademarks or technology to a foreign company in exchange for a fee or royalty.
• The firm sees a potential for extra sales by exporting and uses a local agent or distributor to enter a foreign market.
• The firm may use exporting as a “vent” for its surplus production and might have no long-term commitment to the international market.
• As exports become more important, the MNE will set up an office for its sales representative or a sales subsidiary.
• The firm might set up local packaging and/or assembly operations.
• Finally, the firm will set up a wholly-owned subsidiary (FDI).
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.30
Figure 2.2 Entry into foreign markets: the internationalization process
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.31
Why do firms become MNEs?
• to diversify themselves against the risks and uncertainties of the domestic business cycle; • to tap the growing world market for goods and services; • in response to foreign competition; • to reduce costs; • to overcome barriers to entry into foreign markets; • to take advantage of technological expertise by manufacturing goods directly.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.32
The strategic philosophy of MNEs
• MNEs make decisions based on what is best for the overall company, even if this means transferring jobs to other countries and cutting back the local workforce.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.33
Table 2.2
The international expansion of four MNEs
Source
: United Nations,
World Investment Report
2001 (Geneva: United Nations Conference on Trade and Development, 2001) Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.34
Strategic management and MNEs
• The strategic management process involves four major functions: strategy formulation, strategy implementation, evaluation, and the control of operations.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.35
Figure 2.3 The strategic management process in action Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.36
Basic mission
• The following questions must be answered to determine the firm’s basic mission: – What is the firm’s business?
– What is the reason for its existence?
For example, • Royal Dutch/Shell; BP Amoco and Texaco are in the energy business, not the oil business.
• AT&T, Sprint and MCI are in the communications business, not the telephone business.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.37
Analysis of the external and internal environment
• The goal of external environmental analysis is to identify opportunities and threats that will need to be addressed. • The purpose of an internal environmental analysis is to evaluate the company’s financial and personnel strengths and weaknesses.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.38
Formulation of objectives and overall plan
• Internal and external analyses will help identify long-term (2 –5 years) and short-term (< 2 years) goals.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.39
The implementation process
• Once goals have been established, the plan is then broken into major parts and each affiliate and department is assigned goals and responsibilities.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.40
Evaluation and control of operations
• Progress is periodically evaluated and changes are made in the plan to accommodate changing circumstances and new information.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.41
Framework for global strategies: the FSA/CSA matrix
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.42
Building blocks in our international business
• There are two basic building blocks in an international business course.
–
Firm-specific advantages (FSAs):
a unique capability proprietary to the organization It may be built upon product or process technology, marketing or distributional skills.
–
Country-specific advantages (CSAs):
country factors Natural resource endowments (minerals, energy and forests), the labour force and associated cultural factors, etc.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.43
Figure 2.4 The basic components of international business
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.44
Figure 2.5 The FSA-CSA matrix
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.45
The competitive advantage matrix
• • • •
Quadrant 1:
resource-based and/or mature, globally-oriented firms producing a commodity type product
cost leadership
(Improving FSA can make them move to quadrant 3.)
Quadrant 2:
inefficient, floundering firms alternative but to exit or to restructure no
Quadrant 3:
both follow any of the generic strategies
cost leadership & differentiation Quadrant 4:
differentiated firms with strong FSAs in marketing and customization
differentiation
(the CSA is not relevant) Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.46
It’s regional, not flat
•
The world is flat
by Thomas Friedman, the New York Times journalist.
– Today, a large proportion of international business takes place through offshoring leading to globalization.
• The world is not flat!
– There remain strong barriers as a business attempts to cross the boundaries of triad regions. – The liability of inter-regional foreignness.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.47
CULTURE
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.48
What is Culture?
Integrated system of learned behavior patterns that are characteristic of the members of any given society.
Context Orientation in Major Cultures
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.49
Introduction
•
Culture:
“the sum total of the beliefs, rules, techniques, institutions and artifacts that characterize human populations” or “the collective programming of the mind”. •
Socialization Process:
The process of enculturation or the adoption of the behaviour patterns of the surrounding culture.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.50
Table 5.1 World population percentages in terms of home region, language and religion Sources: www.census.gov; www.adherents.com
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.51
Language
• Language is critical to culture because it is the primary means used to transmit information and ideas.
• Knowledge of local language can: – permit a clearer understanding of a situation; – provide access to local people; – allows the person to pick up nuances, implied meanings, and other information that is not stated outright.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.52
Religion
• Religions influence lifestyles, beliefs, values and attitudes and can have a dramatic effect on the way people in a society act toward each other and towards those in other societies.
• Religion also influences: – the work habits of people; – the work and social customs (from the days of the week on which people work to their dietary habits); – politics and business.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.53
Values and attitudes
• •
Values:
basic convictions that people have regarding what is right and wrong, good and bad, important and unimportant.
Attitude:
a persistent tendency to feel and behave in a particular way toward some object.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.54
Customs and manners
• •
Customs:
common or established practices.
Manners:
behaviour regarded as appropriate in a particular society.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.55
The importance of culture in different business contexts
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.56
Influences of culture on international management
• • • •
Culture influences strategic management in a number of ways: Work attitudes
–
for example, work ethics, organization commitment, etc. Achievement motivation
–
the desire to accomplish objectives and achieve success.
Time and future
–
for example: punctuality, decision-making time constraints, time expectations on implementation of plans, etc.
Ethics
–
standards of conduct and morality.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.57
Geert Hofstede’s four cultural dimensions
• •
Power distance:
measures the degree to which less powerful members of organizations and institutions accept the fact that power is not distributed equally.
Uncertainty avoidance:
measures the extent to which people feel threatened by ambiguous situations and have created institutions and beliefs for minimizing or avoiding those uncertainties.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.58
•
Geert Hofstede’s four cultural dimensions (Continued)
Individualism vs. collectivism
–
Individualism:
the tendency of people to look after themselves and their immediate family only. –
Collectivism:
the tendency of people to belong to groups who look after each other in exchange for loyalty.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.59
•
Geert Hofstede’s four cultural dimensions (Continued)
Masculinity vs. femininity
–
Masculinity:
the degree to which the dominant values of a society are success, money and material goods.
–
Femininity:
the degree to which the dominant values of a society are caring for others and the quality of life.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.60
Figure 5.2 Hofstede’s power distance against individualism for 20 countries
Alan M Rugman and Simon Collinson,
International Business,
Source: Hofstede, G. (1983). The cultural relativity of organizational practices and theories, Journal of International Business
5 th Edition, © Pearson Education Limited 2009
Studies, Fall, p. 92. Copyright © Geert Hofstede
Slide 1.61
Elements of Culture
CONCRETE ELEMENTS
•
Language Verbal Nonverbal
•
Infrastructure
•
Education
•
Social Institutions ABSTRACT ELEMENTS
•
Religion
•
Values and attitudes
•
Manners and customs
•
Aesthetics
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.62
Understanding Cultural Differences
Four Dimensions of Culture
• • • •
Individualism Power distance Uncertainty avoidance Masculinity
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.63
Aspects Societal and Institutional Differences China States United Ethnic Culture Source of Trust
•Centered around "relationships" •"Reclusive", each minding his/her own business (especially with "strangers" and people outside of the relationship network) •Centered around "individuals" •"Messianic": "let's save the world" Trust those around you; don't "lose face" Trust the contract; don't get into legal and credibility by failing to live up to written or oral hassles by not fulfilling the agreement agreements Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.64
Business Culture Negotiation Style Dealing with Business Counterparts Ability to Make Immediate Response
Quiet and reserved; clumsy communicators Outspoken; eloquent; effective communicators Group decision; final say by the "boss" More individual authority and distributed decision making Indirect; courteous; take things personally; long memory for both favors and humiliations Weak Direct; more matter of-factly; memory for conflict superceded by business objective Strong Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.65
Aspects China United States Interpersonal On "Humility" Time Horizon What Commands Respect On "Family" On "the Strong" and "the Weak" Discipline
(in following procedures and schedules)
Tolerance of Diversity / Openness to Alternative
(possibly opposing)
Ideas Shame or Humiliation
"Relationship" comes first "Humility" viewed as a virtue Accountable by the generation (~30 years) Respect for seniority, wisdom, ability Children should learn to respect the elder, love the young, and rely on the "extended family" It is not righteous to bully Strong Openly - very receptive; but actually, less so Alan M Rugman and Simon Collinson, exonerate "Economics" comes first "Humility" is a sign of weakness; there is every reason for the abled to be proud Accountable by the quarter (~3 months) Respect for success, achievement, wealth Children should learn to be independent It is an honor to win; business is all a competition; it is only natural that the weak is preyed on by the strong Depends on the individual More open Tends to be superceded by business priorities
Slide 1.66
JAPAN
Culture and firms’ analysis
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.67
Social and cultural characteristics
• • • •
Collectivism
rather than individualism, dominates many aspects of Japanese life. • Within companies certain characteristics have strong
religious roots
loyalty (chu), duty, obligation or responsibility (giri), ritual and hierarchy.
, including honour, respect, sincerity,
Parent –child relationships
as government characterise the hierarchical nature of inter-organizational and interpersonal links, such –industry, large firm–small firm, manager– employee, etc.
Respect for elders, ritualistic (highly-complex) language forms and behaviour
, group activities and consensus decision making are all important elements.
These contrast individualism and meritocratic forms
of organization and tend overall to unify the Japanese in their response to gaijin (or outsiders).
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.68
Hai ≠ Yes
• Hai can mean one of at least four levels of yes: – recognition, but not necessarily understanding; – understanding, but not necessarily acceptance and agreement; – responsibility, understanding, but must consult with others and secure their agreement before acceptance; and – agreement, which means understanding, agreement and acceptance. • The non-verbal signals from the speaker have to be understood to determine, which yes is being meant.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.69
Keiretsu
• The renowned Japanese corporate groupings or
keiretsu
,
characterised by cross-shareholdings and regular meetings between executives
, represent more or less closely tied groups of integrated businesses. • There are broadly two types of
keiretsu
, the horizontal (
kinyu
) type and the vertical, manufacturing
keiretsu
.
• In the early 1980’s the top six
keiretsu
alone directly accounted for about 5% of the Japanese labour force and 16% of total Japanese corporate sales.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.70
Distribution, retailing and customer-orientation
• Associated with the in Japan.
keiretsu
industry groupings are multi layered distribution and retail networks • This
“tied” system of distribution
, bound by strong face-to-face ties between sellers and buyers at each level, adds substantial costs to the final product. • Many elements of this complex distribution system remain in Japan today. The multi tiered distribution hierarchy has become more simplified, however, driven by the growth in discount stores and cost-reduction measures. Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.71
Characteristics of Japanese management
• We can distil some of the main characteristics of the generic Japanese management style as: – Effective communications internally and with outside firms, and the use of cross-disciplinary, cross-business and
cross-functional workshops.
–
Less separation of R&D, design, manufacturing and marketing functions.
–
Life-time employment, low labour mobility and substantial investments in training
. There is also a strong emphasis on training on-the-job and job-rotation within the firm.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.72
Characteristics of Japanese management (Continued)
–
Strict formal hierarchy
combined with strong underlying
informal networks and a tendency towards consensus-based decision making
(‘horizontal promotion’ for high-fliers and a lack of outsiders entering the firm at senior levels). –
General “long-termism
” with a focus on growth and employment stability and market share rather than profits and shareholder dividends.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.73
Kaisha
(“company”)
• Abegglen and Stalk (1985) sum up some of the distinctive characteristics of Japan as the ‘‘3 Ms’’. –
marketing
: direct links with consumers via retailers and wholesalers and strong customer-led product development; –
money
: cross-shareholding and the lack of outside pressure for short-term returns and stock price improvements; –
manpower strategy
: worker involvement, loyalty, effective team-working, and devolvement of responsibility combined with hierarchy.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.74
Chapter 19 Emerging economies
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.75
Introduction
• Emerging market countries are: – Growing in importance for international managers for both market-seeking investments and resource seeking investment.
– Strongly government-controlled, in that government agencies play a central role in negotiating with foreign investors and deciding the local rules of the game.
– Less predictable and riskier than triad markets, which investors often underestimate in their pursuit of the high level of rewards on offer.
– The source of new competitors, as local firms move up the value-chain, becoming more sophisticated and more international.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.76
Types of international expansion
• There are two types of international expansion that are important in relation to non-triad firms: – internationalization from the triad into non-triad regions; – the internationalization of newer MNEs from outside the triad who are looking to access larger economies.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.77
Triad firms and emerging economy firms: why the mutual interest?
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.78
Triad firms and emerging economy firms: why the mutual interest?
• For triad-based MNEs: – Triad economies are growing slowly relative to emerging markets both large, like India, China and Brazil and small, like Poland or Malaysia – Triad regions also tend to be more expensive, in terms of labour costs, infrastructure, land, materials and supporting industries, relative to non triad regions.
– As a result, there are strong incentives for triad based firms to: sell products, services, and other outputs into these growing, non-triad markets; to source inputs, from cheap labour or manufactured components to services, from such places.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.79
Triad firms and emerging economy firms: why the mutual interest? (Continued)
• For non-triad-based MNEs: – Large, mature markets like the US, the EU and Japan offer opportunities to sell their products.
– Many firms also look to these countries to fill gaps in their assets, resources and capabilities, from technological know-how or specialist components, to brands.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.80
Figure 19.1 What is the attraction for triad and non-triad firms investing in each other’s home regions?
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.81
An overview of emerging economies, by region
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.82
Asia-Pacific and the Middle East
• Receive 22% of global FDI flows, the most of any non-triad region.
• 90% of FDI is concentrated in only 10 countries.
– China, Hong Kong (China) & Singapore receive the most FDI.
– The oil rich countries of the Middle East also experience FDI, but this is almost exclusively related to their oil industries.
• Many of the countries in the region continue to liberalize their economies and privatize state owned assets.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.83
Asia-Pacific and the Middle East (Continued)
• There are two clear trends that indicate the dynamism of the Asia region.
– The growth on intra-regional investment, particularly driven by the regional giants India and China joining countries like Malaysia, South Korea, Taiwan and Singapore as active investors. – FDI in services is growing rapidly and now represents over 50% of FDI stock in the Asia region. Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.84
MNEs from Asia Pacific
• 36 out of the 50 largest non-financial MNEs from developing countries listed by UNCTAD are from the Asia-Pacific region.
– The largest number from any country comes from Hong Kong (China), for example, Hutchison Whampoa (Hong Kong) – Others from the region include Singtel (Singapore); Petronas (Malaysia); Samsung Electronics (South Korea); etc. Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.85
Central and Eastern Europe
• Despite years of political and economic change, including liberalization, the Central and Eastern European region still attracts a relatively small percentage of global FDI inflows (just over 4%).
• Poland, the Czech Republic and Hungary receive larger shares of FDI than other countries in the region but have experienced declines in recent years, as has the Russian Federation. • These, plus 5 other CEE countries (Estonia, Latvia, Lithuania, Slovenia and Slovakia) joined the EU in May 2004 and all saw FDI inflows shrink recently, but prospects look better from now on.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.86
MNEs from Central and Eastern Europe
• The largest MNEs in the CEE region are Russian, many of them based on the country’s abundant natural-resources, such as Gazprom, Rosneft and LuKoil.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.87
Latin America and the Caribbean
• 11% of global FDI went to the Latin America region in 2006.
• The three largest economies of Argentina, Brazil and Mexico had a difficult decade in terms of economic growth and recession, which stymied FDI inflows. • A spate of privatizations during the late 1990s boosted inward FDI for these and other regional economies and as this process came to an end, so did the FDI inflows.
• Brazil and Mexico still received the highest amounts of FDI and, as we would expect, one-third of all FDI into the region came from the USA. • Many Latin American countries now face increased competition for US manufacturing investment from China and the Asian region.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.88
MNEs from Latin America
• 8 of the 50 largest non-financial MNEs from developing countries listed by UNCTAD are from the Latin American region.
– Half of them are based in Mexico. • Many of the largest are natural resources based.
– These include the largest of all, Cemex (Mexico), Petrobras (Brazil), Companhia Vale do Rio Doce (Brazil), Metalurgica Gerdau (Brazil) and Perez Companc (Argentina).
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.89
Africa
• Less than 4% of total global FDI goes to Africa.
– Resource-rich economies (oil, diamonds, gold and platinum) • Home to most of the world’s least-developed countries (LDCs). • Africa has always recorded low levels of inward FDI because of its relative lack of political instability, weak infrastructure, poor labour skills and macro-economic fragility.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.90
MNEs from Africa
• Only 5 of the 50 largest non-financial MNEs from developing countries listed by UNCTAD are from Africa and they are all South-African. • Sappi, Sasol, MTN Group and Barloworld are major players in their respective sectors throughout the region.
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009
Slide 1.91
Figure 19.6 Firm-specific advantages (FSAs) for the new multinationals
Alan M Rugman and Simon Collinson,
International Business,
5 th Edition, © Pearson Education Limited 2009