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Slide 2.
Chapter 2
The multinational enterprise (MNE)
Rugman and Collinson, International Business, 6th Edition, Pearson Education Limited 2013
Slide 2.2

Objectives
The nature of multinational enterprises
Strategic management and multinational
enterprises
A framework for global strategies: the
FSA/CSA matrix
Its regional, not flat.
Slide 2.3
Objectives
Describe the characteristics of MNEs.

Explain the internationalization process.
Explain why firms become MNEs.
Discuss the strategic philosophy of these firms.
Introduce a country/firm framework for examining
a firms competitiveness.
Slide 2.4

A company headquartered in one country but with
operations in one or more other countries.
MNEs often downplay the fact that they are
foreign held.
Slide 2.5
The nature of MNEs
Slide 2.6
Table 2.1
The worlds largest 500 multinational enterprises, 2010 ranking
Note: Data are for 2009

Source: Authors calculations and adapted from Fortune, The Global 500, July 26, 2010.
Slide 2.7
Characteristics of MNES
Affiliates must be responsive to a number of
important environmental forces, including
competitors, customers, suppliers, financial
institutions and government.
Draw on a common pool of resources, including
assets, patents, trademarks, information and
human resources.
Affiliates and business partners are linked
together by a common strategic vision.
Slide 2.8
Figure 2.1
The multinational enterprise and its environment

Slide 2.9
The internationalization process

Internationalization: the process by which a
company enters a foreign market.
Not all international business is done by MNEs.
Indeed, setting up a wholly owned subsidiary is
usually the last stage of doing business abroad.
Why do businesses wait to set up wholly owned
subsidiaries?
Foreign markets are risky.
Slide 2.10
A typical internationalization process

Initially, the firm might license patents, trademarks or
technology to a foreign company in exchange for a fee or
royalty.
The firm sees a potential for extra sales by exporting and
uses a local agent or distributor to enter a foreign market.
The firm may use exporting as a vent for its surplus
production and might have no long-term commitment to
the international market.
As exports become more important, the MNE will set up an
office for its sales representative or a sales subsidiary.
The firm might set up local packaging and/or assembly
operations.
Finally, the firm will set up a wholly owned subsidiary (FDI).
Slide 2.11
Figure 2.2
Entry into foreign markets: the internationalization process

Slide 2.12
Why do firms become MNEs?

To diversify themselves against the risks and
uncertainties of the domestic business cycle;
To tap the growing world market for goods and
services;
In response to foreign competition;
To reduce costs;
To overcome barriers to entry into foreign
markets;
To take advantage of technological expertise by
manufacturing goods directly.
Slide 2.13
The strategic philosophy of MNEs

MNEs make decisions based on what is best for
the overall company, even if this means
transferring jobs to other countries and cutting
back the local workforce.
Slide 2.14
Table 2.2
The international expansion of four MNEs
Source: United Nations, World Investment Report 2001 (Geneva: United Nations Conference on Trade and Development,
2001)
Slide 2.15
Strategic management and MNEs

The strategic management process involves four
major functions: strategy formulation, strategy
implementation, evaluation and the control of
operations.
Slide 2.16
Figure 2.3
The strategic management process in action

Slide 2.17
Basic mission
The following questions must be answered to
determine the firms basic mission:
What is the firms business?
What is the reason for its existence?
For example,
Royal Dutch/Shell; BP and ExxonMobil are in the
energy business, not the oil business.
AT&T and France Telecom are in the communications
business, not the telephone business.
Slide 2.18
Analysis of the external and

internal environment
The goal of external environmental analysis is to
identify opportunities and threats that will need to
be addressed.
The purpose of an internal environmental analysis
is to evaluate the companys financial and
personnel strengths and weaknesses.
Slide 2.19
Formulation of objectives
and overall plan
Internal and external analyses will help identify
long-term (25 years) and short-term (<2 years)
goals.
Slide 2.20
The implementation process

Once goals have been established, the plan is
then broken into major parts and each affiliate and
department is assigned goals and responsibilities.
Slide 2.21
Evaluation and control of operations

Progress is periodically evaluated and changes
are made in the plan to accommodate changing
circumstances and new information.
Slide 2.22
Framework for global strategies:

the FSA/CSA matrix
Slide 2.23
Building blocks in
our international business
There are two basic building blocks in an
international business course.
Firm-specific advantages (FSAs): a unique
capability proprietary to the organization
It may be built upon product or process technology,
marketing or distributional skills.
Country-specific advantages (CSAs): country

factors
Natural resource endowments (minerals, energy and
forests), the labor force and associated cultural
factors, etc.
Slide 2.24
Figure 2.4
The basic components of international business

Slide 2.25
Figure 2.5
The FSACSA matrix

Slide 2.26
The competitive advantage matrix

Quadrant 1: resource-based and/or mature,
globally oriented firms producing a commoditytype product cost leadership (improving FSA
can make them move to quadrant 3).
Quadrant 2: inefficient, floundering firms no
alternative but to exit or to restructure.
Quadrant 3: follow any of the generic strategies
both cost leadership and differentiation.
Quadrant 4: differentiated firms with strong FSAs
in marketing and customization differentiation
(the CSA is not relevant).
Slide 2.27
Dunnings eclectic theory of MNEs:

OLI framework
Ownership factors (O): FSAs
Location factors (L): CSAs
Internalization factors (I): FSAs
O and I, in practice, are integrated features of FSA
management within the MNE that cannot be
decoupled in strategic decision making.
Slide 2.28
Its regional, not flat

The World is Flat by Thomas Friedman, the New
York Times journalist.
Today, a large proportion of international business
takes place through offshoring leading to globalization.
The world is not flat!

There remain strong barriers as a business attempts
to cross the boundaries of triad regions.
The liability of inter-regional foreignness.

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Slide 2.

The multinational enterprise (MNE)

The multinational enterprise (MNE)

Describe the characteristics of MNEs.

The multinational enterprise (MNE)

The nature of MNEs

The worlds largest 500 multinational enterprises, 2010 ranking

Note: Data are for 2009

The multinational enterprise and its environment

The internationalization process

A typical internationalization process

Entry into foreign markets: the internationalization process

Why do firms become MNEs?

The strategic philosophy of MNEs

The international expansion of four MNEs

Strategic management and MNEs

The strategic management process in action

Analysis of the external and

The implementation process

Evaluation and control of operations

Framework for global strategies:

Country-specific advantages (CSAs): country

The basic components of international business

The FSACSA matrix

The competitive advantage matrix

Dunnings eclectic theory of MNEs:

Its regional, not flat

The world is not flat!

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