What is a Multinational Corporation (MNC)?

Must have SUBSTANTIAL DIRECT INVESTMENT in foreign Countries Must be engaged in ACTIVE MANAGEMENT of these offshore assets STRATEGIC & ORGANIZATIONAL INTEGRATION

Traditional Motivations for International Expansion

Need to secure suppliers (raw materials) Market-seeking behaviors (new markets, when
local market is saturated)

Access Low-Cost FOP

Labor Costs Capital as a result of government incentives gov-t package incentives

Emerging Motivations for International Expansion

Technological Motivations

Cost of R&D Investments

capital per each

(Nestle has 6 R&D centers with $1bln

Economic Motivations

Social Developments

Increasing Scale Economies Technological Advances increase Efficient Scale Production Shortening PLC Information Transfer Cultural Convergence

Why Companies Expand Internationally

Global Scanning & Learning Capabilities

Other Opportunities & Alternatives

BUSINESS CULTURE

INFORMATIONAL ADVANTAGE Competitive Positioning

MNCs can leverage investments and revenues from one subsidiary to another to optimize profits
(manipulate the P&L in each subsidiary, depending on taxes)

Dont keep all the eggs in one basket

Prerequisites for Internationalization

MNCs MUST have:

DISTINCT COMPETENCY to overcome being foreign ORGANIZATIONAL CAPABILITY to leverage its strategic assets internally (subsidiaries) rather than externally (contractual agreements) LOCATION SPECIFIC ADVANTAGES (traditional or emerging motivations)

Prerequisites for Internationalization

Motivation is NOT ENOUGH for Success in Foreign Markets Foreign Companies have a DISADVANTAGE relative to Local Co.

Disadvantage = Local Market Knowledge + Existing Customer Relationships

Foreign Country must have an ADVANTAGE to offset the disadvantages

International Mentality

Overseas operations are secondary Purpose is to support the Parent Company

Incremental sales Raw materials Manufacturing components

Domestic Market Focus Overseas managers are expendable

Multinational Mentality

What is different for this market? How I deal with the difference?

Flexible approach

Modify product, strategies, & management

Country-specific approach

Do what is best for each country market

Mangers are independent & entrepreneurial Great amount of redundancy

(repeating)

Global Mentality
Not the entire Co but the product line

(standardization ex.Coca)

The World is the unit of analysis Creates products for the World Market
(standard products decrease costs)

Manufactures on a Global Scale

Distribution System)

(Global

Looks for Similarities in Tastes & Preferences Centralized Decision-Making

Transnational Mentality (flow of

information)

Efficiency & Flexibility across markets Country-level operations are Interlinked Resources & activities are Integrated into a Network of World-Wide Operations Rationalization (future investments to increase
efficiency and effectiveness)

Distinguishing Characteristics of the MNC compared to domestic firms

Performance Measurement

Multiple Currencies/Exchange Rate Fluctuations Accounting Methods/Laws Functional & Geographic Diversity

Managing the Organization

Distance, Time, Language, Cultural Differences

Distinguishing Characteristics of the MNC

Social, Political, & Economic context is broader

Ownership & Sovereignty Free Enterprise Corporate Responsibility (social

responsibility to the customers)

Competitive Strategy

Global Basis