This chapter discusses corporate strategy and foreign direct investment. It covers the theory of the multinational corporation, including why firms engage in FDI and different types of market integration. The chapter also examines the strategy of the multinational enterprise depending on the firm's stage of development. Finally, it outlines the necessary elements for designing a global expansion strategy, such as selecting a mode of entry, adjusting the effectiveness of the entry mode, and estimating how long competitive advantages will last overseas.

1. CHAPTER 20CHAPTER 20
CORPORATECORPORATE
STRATEGY ANDSTRATEGY AND
FOREIGN DIRECTFOREIGN DIRECT
INVESTMENTINVESTMENT

2. CHAPTER OVERVIEW:CHAPTER OVERVIEW:
I.I. THEORY OF THETHEORY OF THE
MULITNATIONAL CORPORATIONMULITNATIONAL CORPORATION
II.II. THE STRATEGY OFTHE STRATEGY OF
MULTINATIONAL ENTERPRISEMULTINATIONAL ENTERPRISE
III.III. DESIGNING A GLOBALDESIGNING A GLOBAL
EXPANSION STRATEGYEXPANSION STRATEGY

3. I. THE THEORY OF THEI. THE THEORY OF THE
MULTINATIONAL CORPORATIONMULTINATIONAL CORPORATION
I.I. THE THEORY OF THE MULTINATIONALTHE THEORY OF THE MULTINATIONAL
CORPORATIONCORPORATION
A.A. The MNC as an Oligopolist: WhyThe MNC as an Oligopolist: Why
FDI?FDI?
1. When is FDI justified?1. When is FDI justified?
2. Internalization2. Internalization
3. Market Integration3. Market Integration
a.a. VerticalVertical
b.b. HorizontalHorizontal

4. THE THEORY OF THETHE THEORY OF THE
MULTINATIONAL CORPORATIONMULTINATIONAL CORPORATION
B.B. Financial Market ImperfectionsFinancial Market Imperfections
1.1. HypothesisHypothesis
2.2. Diversification Effect of the MNCDiversification Effect of the MNC

5. II.II. THE STRATEGY OF THE MNCTHE STRATEGY OF THE MNC
II.II.THE STRATEGY OF THE MNCTHE STRATEGY OF THE MNC
A.A. Three strategies:Three strategies:
1. No. 1 That of the Innovation-1. No. 1 That of the Innovation-
based MNCbased MNC

6. THE STRATEGY OF THE MNCTHE STRATEGY OF THE MNC
Three Strategies (con’t)Three Strategies (con’t)
2.2. No. 2 That of the mature MNCNo. 2 That of the mature MNC
a. the importance of economies ofa. the importance of economies of
scale andscale and
b. economies of scopeb. economies of scope

7. THE STRATEGY OF THE MNCTHE STRATEGY OF THE MNC
3.3. No. 3 The senescent MNCNo. 3 The senescent MNC
a. global scanning capabilitya. global scanning capability
b. the role of rationalization andb. the role of rationalization and
integration.integration.

8. THE STRATEGY OF THE MNCTHE STRATEGY OF THE MNC
4.4. FDI and SurvivalFDI and Survival
a. Cost reductiona. Cost reduction
b. Economies of scaleb. Economies of scale
c. Multiple sourcingc. Multiple sourcing
d. Keeping domestic customersd. Keeping domestic customers

9. III.III. DESIGNING A GLOBALDESIGNING A GLOBAL
EXPANSION STRATEGYEXPANSION STRATEGY
III.III. DESIGNING A GLOBAL EXPANSIONDESIGNING A GLOBAL EXPANSION
STRATEGYSTRATEGY
A. Five Necessary Elements:A. Five Necessary Elements:
1. Awareness of profitable1. Awareness of profitable
investmentsinvestments
-building competitive advantage-building competitive advantage
2. Selecting a mode of entry2. Selecting a mode of entry
-evaluate systematically-evaluate systematically

10. DESIGNING A GLOBALDESIGNING A GLOBAL
EXPANSION STRATEGYEXPANSION STRATEGY
A. Five Necessary Elements (con’t)A. Five Necessary Elements (con’t)
3.3. Adjusting the Effectiveness of theAdjusting the Effectiveness of the
Entry ModeEntry Mode
- continual auditing- continual auditing
4.4. Using appropriate evaluation criteriaUsing appropriate evaluation criteria

11. DESIGNING A GLOBALDESIGNING A GLOBAL
EXPANSION STRATEGYEXPANSION STRATEGY
5.5. Estimating the longevity ofEstimating the longevity of
competitive advantage:competitive advantage:
a. Develop competitive strengtha. Develop competitive strength
transferable overseas.transferable overseas.
b. Not easily duplicatedb. Not easily duplicated