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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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The Multinational Enterprise.

The Multinational Enterprise.

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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.

The Multinational Enterprise.

The Multinational Enterprise.

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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.

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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.

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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 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.

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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

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

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.