CHAPTER 1 EXPANDING ABROAD MOTIVATIONS, MEANS, MENTALITIES

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CHAPTER 1EXPANDING ABROAD MOTIVATIONS, MEANS,
MENTALITIES
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KEY QUESTIONS

• How is the MNE defined?
• How influential is the MNE regarding the world
  economy?
• What are the traditional and the more recent
  motivations for firms to internationalize?
• What are the prerequisites for internationalizatio
  n?
• What is involved in the process of
  internationalization?
• What are the 4 mentality models relating to the
  transition from international to transnational?

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DEFINITIONS OF THE MNE

• Generic use of the term multinational
  enterprise (MNE)
• ( means Dr. Ks preference or topic)

• The conceptual definition
• - Direct investment (not portfolio) in 2 or
  more countries

• Integrated management
• Strategy
• Structure
• Resources

• Statistical definition of the MNE
• - USA 10 ownership of foreign shares

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INFLUENCE OF MNEs ON WORLD ECONOMY
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INFLUENCE OF MNEs ON WORLD ECONOMY

• 45 countries GDPgtExxonMobils VA 88ltEMs VA
  (est.)

• 2/3 world trade by MNEs ½ intra-MNE, ½
  external

• Influence by sector Top 500 MNEs account for
  
• - 85 of worlds autos
• - 70 of worlds computers
• - 65 of Worlds softdrinks

• UN estimates (2004) 70,000 MNEs, 690,000
  foreign
• affiliates, revenues gt 18.7 trillion

• Influence of the world economy on MNEs
• - Research unclear issue under debate

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TRADITIONAL AND RECENT MOTIVATIONS TO
INTERNATIONALIZE

• Traditional triggers
• - To secure key supplies mining, energy,
  plantations
• - To secure markets Nestle, Bayer, Ford,
  Heinz
• - Motivations evidenced in Vernons Intl PLC
  Theory

• More recent motivations
• - Securing and implementing competitive
  advantages

- Scale and scope economies production, RD
- Using comparative advantage for competitive
advantage
- Using competitive positioning -
Cross-subsidization of markets - Threat of
retaliation
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PREREQUISITES FOR INTERNATIONALIZATION

• The liability of foreignness (LOF)
• Definition
• Need to overcome the LOF to benefit from market
  

• How to overcome the LOF?
• - Implement competitive advantages
• Scale/scope economies, technology, brands, etc.

-
- Possess or develop internalization advantages

• Summary

- Potential for location-specific benefits for
the MNE
- MNE has owner-specific advantages to overcome
LOF

• MNEs benefits from internal competencies gt
  benefits
• from (external) contractual relationships

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PROCESS OF INTERNATIONALIZATION

• Process typically builds on analysis,
  opportunism,
• and good luck

• The Uppsala school options approach
• - A knowledge-accumulation, risk-reduction model
• - Explains much but not all
• - Scope economies at work
• - Other forces may be at work

• Forces such as control, timing, resources, and
  competition (see next slide)

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PROCESS OF INTERNATIONALIZATION(follow-up)
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THE 4 MODELS INTERNATIONAL TO TRANSNATIONAL

• International mentality
• - Ethnocentricity
• - Derived from Int/l PLC model directly
• - Affiliates are foreign appendages

• Multinational mentality
• - Polycentricity
• - Whole is the sum of the parts

• Global mentality

- Product standardization across markets -
Centralized RD, manufacturing, strategic
decisions
-

• Transnational Mentality
• - Capture benefits of global efficiency
• - Respond to local needs