Rugman's theories propose that: 1. Globalization is a myth as most MNE activities occur within regional clusters like North America, Europe, and Asia rather than globally. 2. There are four types of MNEs based on the ratio of their sales in their home region and other regions: home region-oriented, bi-regional, host-region-oriented, and global. 3. MNEs can employ strategies along a spectrum from high national responsiveness to high economic integration depending on whether they rely on firm-specific or country-specific advantages.

1. Rugman’s MNEs Theories
WIRADISURIA, Prayoga
Oct 17, 2007

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. 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. 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. 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. 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. MNE’s Strategies [1]
National responsiveness vs. economic integration
National
Responsiveness
Low High
Low 1 3
Economic
Integration
High 2 4

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. 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. 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. 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