Rugman’s MNEs Theories




   WIRADISURIA, Prayoga
   Oct 17, 2007
Summary & Background



 There are two important research conclusions that
 Rugman came with:


 1. Globalization is a myt...
Globalization is (still) a myth [1]
   Dynamic international activities are only observed in 3
   clusters: North America,...
Globalization is (still) a myth [2]
 Significant number of activities of large MNEs are
 performed in their regional clust...
Globalization is (still) a myth [3]
 MNEs are not globally monolithic


 Headquarter locations of 500 largest MNEs




   ...
1 Home

Rugman MNE classification                                                  2 Abroad


                            ...
MNE’s Strategies [1]
National responsiveness vs. economic integration
                         National
                  ...
MNE’s Strategies [2]
National responsiveness vs. economic integration
                              National
             ...
MNE’s Strategies [3]
Firm specific advantage vs. country specific advantage
                         Firm specific
       ...
MNE’s Strategies [4]
 Firm specific advantage vs. country specific advantage
                        Type of firm specific...
Practical Views
To be able to penetrate to other clusters in “the triad” and
replicate home cluster success, McKinsey’s Ke...
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Rugman Concept

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Rugman Concept

  1. 1. Rugman’s MNEs Theories WIRADISURIA, Prayoga Oct 17, 2007
  2. 2. Summary & Background There are two important research conclusions that Rugman came with: 1. Globalization is a myth 2. There are systematic strategies MNEs can employ in order to have successful business presence in regions other than their own
  3. 3. Globalization is (still) a myth [1] Dynamic international activities are only observed in 3 clusters: North America, Europe and Asia.. and.. Clusters do not rely on each other Intra cluster NAFTA Extra cluster US$1010.9 billion 51% 49% US$ 226 billion US$ 182 billion US$ 220 billion US$ 155 billion ASIA US$ 153 billion EUROPEAN UNION US$ 1042.6 billion 47% 53% US$ 2092.3 billion 39% 61% US$ 197 billion Source: The End of Global Strategy, Allan M. Rugman, 1997 Data
  4. 4. Globalization is (still) a myth [2] Significant number of activities of large MNEs are performed in their regional clusters (not global) Automobile Chemical Services Sector Sources of cars in Paint consumption in Employs 70% of North America each cluster workforce in North America, Western Europe, and Japan These activities are all essentially local or regional (not global) Manufactured in North Produced inside the America (>90%) cluster (>90%) Applies also to EU and Applies also for stell, Japan heavy electrical equipment, transportation
  5. 5. Globalization is (still) a myth [3] MNEs are not globally monolithic Headquarter locations of 500 largest MNEs Asia 125 North America 198 156 EU
  6. 6. 1 Home Rugman MNE classification 2 Abroad # of Companies Type Definition (ratio of sales) Observed* Example Wal-Mart, GM, Cluster 1 >50% Ford, GE, Total Home Region Cluster 2 320 FinaElf, Itochu, <50% Carefour, Mitsui, Cluster 3 Sumitomo BP, Toyota Cluster 1 >20% Motor, Unilever, Bi-region 25 Cluster 2 >20% Motorolla, 3M, Roche Group, Cluster 3 <50% McDonald Cluster 1 Daimler Chrysler, Host-region <50% Honda, Ing 11 Cluster 2 Group, >50% Astra Zeneca Cluster 3 Cluster 1 20-50% IBM, Sonny, Global 9 Philips, Nokia, Cluster 2 20-50% Intel, Coca-cola, Cluster 3 20-50% Canon *From 500 largest companies
  7. 7. MNE’s Strategies [1] National responsiveness vs. economic integration National Responsiveness Low High Low 1 3 Economic Integration High 2 4
  8. 8. MNE’s Strategies [2] National responsiveness vs. economic integration National Responsiveness Low High Coca-cola Procter & Gamble Disney Nortel Networks Saatchi & Saatchi P&O High Matsushita IKEA Nokia Ericsson Economic Integration Philips Unilever Kingfisher Low
  9. 9. MNE’s Strategies [3] Firm specific advantage vs. country specific advantage Firm specific advantage Week Strong Week 1 3 Country specific advantage Strong 2 4
  10. 10. MNE’s Strategies [4] Firm specific advantage vs. country specific advantage Type of firm specific advantage Location-bound Non location-bound Single 1 3 Number of home bases Multiple 2 4
  11. 11. Practical Views To be able to penetrate to other clusters in “the triad” and replicate home cluster success, McKinsey’s Kenichi Ohmae suggested for MNEs to possess the following 9 capabilities: 1. Well established management systems 2. Full-set of business functions spontaneously responsible to local conditions (though they may be supplemented by headquarters’ and other regions’ functions) 3. Management fully familiar with local and regional customers and competitors 4. Continuity in management, with mostly homegrown and globally trained personnel 5. Quick and autonomous decision making, but which is fully synchronized and communicated with the rest of corporation 6. Strong “staying power” during the periods of discontinuity and difficulty in the key markets 7. Active communication at all costs within the corporation at the interfaces with affiliated companies 8. Little tolerance for standard “it’s out of my control” excuses regarding shortcomings and mistakes 9. Significant presence and weight felt throughout the community where operations are located

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