Players in ib


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Players in ib

  1. 1. International Business THE MULTINATIONAL ENTERPRISE
  2. 2. DO YOU KNOW? • Who are the players in the international business arena? • How can you tell the degree of a firms internationalization? • Will a higher degree of internationalization lead to higher corporate performance? • What advantages and disadvantages do MNEs have when they operate overseas compared to local firms?
  3. 3. WHAT IS A MULTINATIONAL ENTERPRISE The internationally committed company – has at least one plant or joint venture abroad. The internationally 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 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. The global firm – has integrated international subsidiaries controlled by headquarters
  4. 4. WHAT IS A MULTINATIONAL ENTERPRISE Multinational Enterprise (MNE) – a firm with foreign direct investment, service or manufacturing, over which it maintains effective control. International firm – a firm engaged in trade activities but without an FDI component. Small and Midsize International Enterprises (SMIE) – Most of these firms do not have FDI presence and do not qualify as MNEs
  5. 5. THE DEGREE OF INTERNATIONALIZATION • Transnationality Index (TNI) – the level of MNE internationalization. • Calculated as the average of three ratios: • Foreign assets to total assets • Foreign sales to total sales • Foreign employment to total employment
  6. 6. THE DEGREE OF INTERNATIONALIZATION Exhibit 4-1: Average transnationality of the world’s 100 largest MNEs 1990-1998
  7. 7. HISTORY OF THE MNE • MNEs can be traced to the Phoenician, Carthaginian, Greek, and Roman empires • Date back to Assyria around 2000 B.C. • Faced the same obstacles as today’s MNEs: • Tariffs • Nationalistic opposition to foreign trade and investment • Using competitive advantage and market power
  8. 8. THE WORLD’S LARGEST MNES •In 1998, the top 100 non- financial MNEs accounted for • 13% of all foreign assets • 19% of all foreign sales • 18% of all foreign employment.
  9. 9. THE WORLD’S LARGEST MNES Exhibit 4-3: Home country of the world’s largest 100 MNEs by TNI and foreign assets
  10. 10. THE WORLD’S LARGEST MNES Exhibit 4-4: The largest 10 U.S. MNEs (at the end of 1999)
  11. 11. THE INDUSTRY COMPOSITION OF MNES Exhibit 4-5: Industry composition of the largest 100 MNEs Dominated by a limited number of industries.
  12. 12. THE INDUSTRY COMPOSITION OF MNES Exhibit 4-6: The largest 5 MNEs in each industry
  13. 13. THE GROWTH OF SERVICE MNES • There has been significant growth of MNEs in service areas, due to: • Economic transformation – developed nations shifting into service economies • Globalization and liberalization of regulatory systems – “open skies” agreements, accounting standards, flexible store hours, etc. • Communication advances – allow MNEs to coordinate knowledge-intensive operations across borders.
  14. 14. THE GROWTH OF SERVICE MNES Exhibit 4-7: The world’s top 20 banks 2001 (based on total assets) Note the U.S.
  15. 15. THE GROWTH OF SERVICE MNES Exhibit 4-8: The world’s top airlines, 2001
  16. 16. THE MNE IN THE PUBLIC EYE • The MNE has been both lauded and vilified for its impact on host and home countries. • Among the more positive attributes are: • MNEs provide knowledge, capital, technology, expertise, global affiliations, contributions to national productivity and exports, innovation, employment, and societal change.
  17. 17. THE MNE IN THE PUBLIC EYE • Among the negative attributes are: • 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 • move on when their exploitation is finished
  18. 18. THE COMPETITIVE ADVANTAGE OF THE MNE • 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 • helps them overcome entry barriers and high start up costs.
  19. 19. MNE’S CAPABILITIES • MNE Capabilities • Firm capabilities • Familiarity with national culture, industrial structure, and government requirements • Existing relationships with customers, suppliers, regulators • Strategic capabilities • Technological assets (patents, trade secrets, proprietary designs, product development) • Managerial skills • International experience
  20. 20. MNE’S CAPABILITIES • Capability Deployment • MNE’s must transfer critical capabilities unavailable to local players. • Technological and financial capabilities are more transferable than organizational skills. • Capability Upgrading • Learning capability – the capacity to generate ideas and acquire new knowledge. • More transferable than firm resources.
  21. 21. THE MNE FROM EMERGING / DEVELOPING ECONOMIES (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
  22. 22. THE LARGEST DEVELOPING COUNTRY MNES • DMNE Scale • Median DFI holding for a top 50 DMNE in 1998 was $1.5 billion, versus $14 billion for a global 100. • DMNE Industries • Largest group consists of diversified firms • Electronics, petroleum, and food/beverage • The National Affiliation of DMNEs • Dominated by South, Southeast, and East Asia
  23. 23. THE LARGEST DEVELOPING COUNTRY MNES Exhibit 4-10: Global expansion of Cemex SA 2001
  24. 24. THE LARGEST DEVELOPING COUNTRY MNES Exhibit 4-11: Industry composition of the largest 50 MNEs from developing countries
  25. 25. THE LARGEST DEVELOPING COUNTRY MNES Exhibit 4-12: Country composition of the largest 50 MNEs from developing economies
  26. 26. OBSTACLES FACING MNES FROM DEVELOPING ECONOMIES • Resource Constraints • Capital investment, lack of reputation, brand recognition • Lack of Knowledge • Experience in foreign operations, lack of production, marketing and management skills • Sheltered Environment • Protected by duties, lack of knowledge and expertise from conducting international business
  27. 27. DMNE ADVANTAGE IN GLOBAL MARKETS • Home Government Support • Impact of the DMNE on the national economy • Shields the firm from the marketplace, hampering its capability development • Flexibility • Lower production scale permits flexibility and adaptation • Less investment sunk in older plants and technologies
  28. 28. TYPICAL FEATURES OF DMNES Internationalization Patterns To develop ownership advantages To serve as intermediaries To overcome import quotas in developed markets To reduce risk via diversification Focus on Other Developing Markets More likely to have greater share of FDI in other developing markets. Reliance on Third Parties To compensate for resource shortages
  29. 29. TYPICAL FEATURES OF DMNES • Governance • Less likely to be publicly traded, and tightly controlled • Industry Domain • More likely to be in manufacturing • Bargaining Power • Lack bargaining power in the host country • Strategy • More likely to compete on price than on product differentiation
  30. 30. WHAT IS AN 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.
  31. 31. WHAT IS AN SMIE? Exhibit 4-14: Small companies can be international
  32. 32. OBSTACLES TO SMIE INTERNATIONALIZATION • Scale and Transaction Constraints • Access to Capital • Lack of Knowledge • Lack of Market Power • Vulnerability to Intellectual Property Violations
  33. 33. OBSTACLES TO SMIE INTERNATIONALIZATION Exhibit 4-15: Entry barriers to international trade for Minnesota SMIEs
  34. 34. SMIE INTERNATIONALIZATION FEATURES • International Motivation • Push factors – competitive pressures in its domestic market • Pull factors – make foreign locations more attractive • Management factors – managerial commitment and resources devoted to international activity • Chance factors – unforeseen circumstances that create internationalization opportunities
  35. 35. SMIE INTERNATIONALIZATION FEATURES • Internationalization Patterns • Often not incremental, often “leapfrog” into international markets • SMNE Exporter Profile • 97% of U.S. exporters are small businesses • Exporter Demographics • SMIE Foreign Investment Profile • At present relatively small, but growing
  36. 36. SMIE INTERNATIONALIZATION FEATURES • Chance Expansion • SMIEs respond to incidental opportunity • Nature of FDI by SMIEs • Emphasis on Developed Markets • More likely to invest in developed markets • Selective Globalization • Tend to focus on one link in the supply chain and on a selected market • Strategy • Often adopt niche strategies • Rely more on cooperative strategies
  37. 37. BORN INTERNATIONAL • A business organization that from inception seeks competitive advantages from the use of resources and sale of output in multiple countries.