MNEs and the Evolving Global Business Environment

1
Lecture II

• MNEs and the Evolving Global Business Environment
• (ch. 1)

2
Definition of MNE

• Substantial DFI (Direct Foreign Investment)
• Active management of offshore assets
• Can be in manufacturing or service
• Can be wholly owned or joint venture operations
• Differences between joint venture and strategic
  alliances

3
Beyond Multinational

• The Globally Integrated EnterpriseSamuel J.
  Palmisano,
• Foreign Affairs, May/June 2006
• Summary  A new corporate entity based on
  collaborative innovation, integrated production,
  and outsourcing to specialists is emerging in
  response to globalization and new technology.
  Such "globally integrated enterprises" will end
  up reshaping geopolitics, trade, and education.

4
Matching Organization to Innovation
5
Virtual Company vs. MNE (or,TNC)
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Evolving Global Business Environment

• 1. Free trade? (Managed trade?), removal of trade
  barriers, (GATT), WTO Globalization (also see
  Ch2 BG)
• 2. Changing attitudes of the developing
  countries, more favorable DFI policies
• 3. Regional economic integration EU, NAFTA,
  ASEAN, APEC.
• 4. Technological advancement impacts on
  strategy and structure
• 5. Competition for capital, borderless global
  operations immense investments and new
  technologies force MNCs to look for global
  markets
• 6. Globally integrated supply chain, greater
  interdependence

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Thoughts leading to Globalization in the late
20th century

• Alvin Toffler 1990, international firms are
  moving toward stateless corporations, no longer
  US, Japanese, or German rather, they are
  non-national
• Robert Kuttner 1990, MNCs arestateless,
  globalized corporations with operations,
  shareholders, and managers all over the world,
  largely indifferent to location except on the
  grounds of economic efficiency
• Robert Reich 1992, The Work of Nations
  Preparing Ourselves for the 21st Century
  capitalism.
• Lester Thurow 1999, Building Wealth The New
  rules for Individuals, companies and Nations.
• F. Fukuyama 1989, The End of History, Foreign
  Affairs
• T. Freidmans Golden Arch Theory of Conflict
  Prevention see Friedmans book of The Lexus
  and The Olive Tree 1999
• (see lecture 1 for changing thoughts in the 21st
  century)

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Additional Issues

• Safety-
• - Managing the World Safe for Markets HBR,
  8/2003,
• A. Chua
• - World on Fire, A. Chua, 2003
• Cross-Border, Cross- Cultural Business Ethics
• - Emerging ThreatHuman Rights Claims E.
  Schrage, HBR,
• 8/2003
• (Chapter 8 see slide 25)
• http//blogs.iht.com/tribtalk/business/globalizati
  on/

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Why Companies Expand Internationally?

• Motivations (BG Ch. 1)
• 1. Traditional Motivations (1950-1980)
• 2. Emerging Motivations (1980 - )
• 3. Beyond Motivations

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1. Traditional Motivations (1950-1980)

• Secure key supplies
• Market seeking
• Searching low-cost production fac

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2. Emerging Motivations (1980 - )

• Increasing scale economics
• Escalating RD investments
• MNCs global scanning and learning capabilities

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3. Beyond Motivations

• a. Location-specific Advantages
• b. Strategic competencies
• Strategic advantage ownership-specific
  advantages such as patented technology, product
  differentiation, economies of scale, brand names,
  managerial skills, etc
• c. Organizational capabilities
• The firms organizational capabilities that could
  employ its strategic advantages better than
  others (see K. Ohmaes article in BGs book for
  insiderization)

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Underlying theories of International
Expansion( see other IB texts)

• Theory of International Trade (theory of
  Comparative Advantage)
• Theories of DFI
• Theory of International Product Life Cycle

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International Product Life Cycle

• R. Vernon 1966
• Stage 1- innovative country, new product, home
  market
• Stage 2 - mature, standardized design, lower
  price, other industrialized countries
  joined production
• Stage 3 - DFI in developing countries, export
  back to home and other markets
• Stage 4 technological diffusion, full
  globalization

15
International Product Life Cycle

• Wells 1972

16
Types of International Business Operations

• Import/Export
• Counter-trade
• Barter, Counter-purchase, Buyback,
  Switch-trading
• Turnkey projects
• Licensing/Franchising
• Joint Venture
• minority ownership, 50-50 JV, majority ownership
• Wholly owned Operation

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MNEs International Expansion Strategies

• Licensing
• Management Contract
• Strategic Alliance
• Joint Venture
• Merger
• Acquisition
• Build from Scratch

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Decision Factors

• Control
• Restrictions from the Host Governments
• Risk
• Capital
• Technology
• Timing

20
MNCs Evolving Mentality

• Permultter 1968
• Ethnocentric
• Polycentric
• Geocentric

21
MNCs Evolving Mentality (Contd..)

• Bartlett Ghoshal
• International mentality
• Ethnocentric, home country oriented
• Multinational mentality
• Polycentric, host country oriented
• Global mentality
• Centocentric
• Transnational mentality
• Geocentric

22
Geocentric mentality? Best Practice

• Value-driven model
• V ( Q F S ) / C

23
BGs transnational companies

• Efficiency
• Flexibility
• World wide learning

24
IHRM example of MNCs evolving mentality

• Expatriates
• Host nationals
• Ethnic expatriates
• Cosmopolitan personnel

25
The Future of the Transnational an Evolving
Global role

• Ch. 8 basically deals with MNEs social
  responsibilities, which are further complicated
  by
• - operating in culturally different markets and
  subject to different legal constraints.
• - growing pressure of sustaining competitiveness
  ( much of it comes from greater efficiency the
  exploitive MNE)
• - growing discontents with globalization
• - rising nationalism (pressure to localize)

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Managers in the new century

• Green, Hassan,Immelt, Marks and Meiland, In
  Search of Global Leaders HBR, 8/2003pp. 38-45
• Cultural Competency
• Overseas assignment prerequisite?
• Attitudes