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171230 International Business

and ManagementTuesday October 29 th , 2013

I-342Dr. Jeffrey Overall

Institut für Unternehmensführung und OrganisationKönigsworther Platz 1, Raum: II-12730167 Hannover

[email protected]

mailto:[email protected]






Today

• Chapter 1 of Transnational ManagementExpanding abroad: Motivations, means, and mentalities

* Beginning of Chapter 2 of Transnational ManagementUnderstanding the international context: Responding toconflicting environmental forces

History of globalizationhttp://www.youtube.com/watch?v=5SnR-e0S6Ic

http://www.youtube.com/watch?v=5SnR-e0S6Ic







What is aMultinational Enterprise (MNE)?

• Substantial direct investment in foreigncountries (not just an export business) (e.g.,

JVs, M&A)• Active management of these offshore assets

(not simply holding them as a passivefinancial portfolio) (Varying degrees)

• Management integration of operationslocated in different countries

1-3



What’s Different (Continued)?

• Global competitive game• Multiple markets, new strategic options (racing to

markets)

• Currency fluctuation and exchange risk• Economic performance measured in multiple currencies

(Significant gains and losses are a result) (be carefulwhen investing)

• Organizational complexity and diversity• Need to manage complex demands across barriers of

distance, time, language, holidays (CNY) and culture(consultants, facilitators, 24 hrs/7 days)(Issues? Bribery, human rights, and time)

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MNE Influence in the GlobalEconomy

• Largest MNEs are as large as (and perhaps moreinfluential than) mid-sized countries• Exxon Mobil value-added 2006: $112 billion (lobbyist,

PR, spin-doctors)• Hungary value-added 2006: $113 billion

• Some industries completely dominated by MNEs,including automobiles, computers and soft drinks

• Financial industry in the US (lobbyists and bailout)• Enron collapse (manipulating energy prices to effect

supply/demand)

1-6



Motivations: Pushes and Pullsto Internationalize

• Traditional motivations• Market Seeking: Fill capacity, develop scale, and growth (capitalist

model)• Resource Seeking: Secure supplies, exploit factor cost differences

• Solving both at the same time• Emerging motivations• Competitive positioning (or “global chess”): Need global

operations to pre-empt others, secure profit sanctuaries, exchangehostages, etc.(address union issues, forward thinking)

• Global scanning: Access emerging trends, new technologies andbest skills worldwide ( env’t scanning!! Read papers from eachcontinent)

• Brain drain in many countries (Toronto as a case study)

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1-8

International Expansion Motivation

Market and Resource Seeking• Secure raw materials• Exploit factor cost differences• Protect exports• Provide growth• Canada became a country as

a result of seeking supplyCompetitive Positioning

• Match competitors• Capture global scale• Preempt markets• Play “Global Chess”

Global Scanning/ Learning• Global intelligence scan• Access scarce knowledge

• Recruit skills, expertise• Intangibles!

Pre-1970

70s/80s

90s/00s



Evolving Theory of Foreign DirectInvestment (FDI)

• International Capital Theories: FDI driven by return equalization,portfolio diversification, incentives (tax and land)

• Location Theories: FDI driven by countries’ comparative advantage

• Product Cycle Theory: FDI driven by firms’ management of the globalproduct life cycle

• Oligopolistic Behavior Theories: FDI driven by firms’ search for, ordefense of, competitive advantage

• Internalization Theory: FDI driven by organizations’ internal

transaction efficiency (hierarchy vs. markets)• Eclectic Theory: FDI driven by many shifting forces

• What happens when companies want to bring profits back? Taxefficiencies, dividends, creative salary options.

1-9



Means of Internationalization:Pre-requisites

• Foreign countries must offer location-specificadvantages

• To motivate the company to invest there, such as low-taxes(e.g., China’s policy)

• Company must have strategic competencies orownership-specific advantages

• To counteract its relative unfamiliarity with foreign markets(address this with JVs and buy-outs later; could lead to

failure with cultural difference, communication issues, etc)• Company must have organizational capabilities• To get better returns from leveraging strengths internally

rather than through external market mechanisms such ascontracts and licenses (e.g., IP, bureaucracy)

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Means of Internationalization:Processes

• Classic internationalization process:

• Incremental process of increasing commitmentand understanding of foreign market (UppsalaModel)

• Today many companies short-cut thisprocess• In an Internet Age, many are even “Born

Global” 1-11



Uppsala Model

• Firms first gain experience from the domesticmarket before they move to foreign markets;

• Firms start their foreign operations from

culturally and/or geographically close countriesand move gradually (e.g., Wal-Mart model)• Firms start their foreign operations by using

traditional exports and gradually move to usingmore intensive and demanding operation modes(sales subsidiaries etc.) both at the company andtarget country (for example automotive industry)



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Process of Internationalization

Export (agentor distributor)

Wholly-ownedsubsidiary

Franchising

Licensing

IndirectExport

High

High

Low

Low

Amount of resources committed to foreign market

C o n

t r o l o v e r

f o r e

i g n

a c

t i v i t i e s

Joint venture(local partner)



Evolving Mentality:International to Transnational

• Multinational Perspective: Overseas markets a portfolio of localopportunities; managed as a decentralized federation

• International Perspective: Leverages its domestic capabilitiesworldwide; managed as a coordinated federation

• Global Perspective: Views world as a single unit of analysis;operations managed centrally (e.g., regional strategy)

• Transnational Perspective: Simultaneously responds to local needs,global demands, and cross-border learning opportunities; managedas an integrated network

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Beginning of Chapter 2 content

Transnational Management Understanding the international context:Responding to conflicting environmental forces

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Three Conflicting Setsof External Demands

• Forces for cross-border integration and

coordination

• Forces for national differentiation and

responsiveness

• Forces for worldwide innovation and learning2-18



Forces for Global Integrationand Coordination

• Economies of Scale (reductions in the average cost (cost per unit)associated with increasing the scale of production for a singleproduct type)

• Economies of Scope (similar to scale -> refers to lowering theaverage cost for a firm in producing two or more products)

• Factor Costs (unit cost of a particular factor of production)

• Increasingly Liberalized Environment for Trade (such as NAFTA,EU, and new free-trade agreements signed daily)

• Expanding Spiral of Globalization

2-19



Global Competitorsas Change Agents

• For industry globalization to take place:• Underlying drivers (economies of scale and scope,

etc.) have to be in place

• But always triggered by actions of one or twoglobal “change agents”

• Examples:• British Airways (airlines)• Starbucks (premium coffee shops)• ISS (cleaning services)• Ikea

2-20



Global Industries

To borrow from Shakespeare:

• Some industries are born global

• Some are made global

• Others have global-ness thrust upon them,such as Coca-Cola

• To truly effective is when individuals believethat a company originated in their country

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Forces for Local Responsiveness

• Cultural differences• Consumer tastes and preferences (Wal-Mart in Germany)• Ways of doing business

• National infrastructure• Technical standards (e.g., voltage, TV broadcast, etc.)• Distribution channels (e.g., supermarkets vs. bazaars)

• Government demands• National laws and regulations (each country is different,

China vs. Germany)• Host country pressures and demands

(China with their import/export manual)• Local competitors

• Appeal to nationalism 2-22



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MNC-Host Government Relationship:A Study in Love/Hate

MNC

MNCMNC MNC

MNC MNC

Host CountryGovernment

Soug ht for i t s capi ta l ,technology,

management

Accom mo dated fo r it scon t r ibu t ion s to loca l soc ia l

and econo mic n eeds

Cour ted fo r i t s g lob a le ff i c iency and w or ld

m arket access

Feared fo r i t s po werand independence

Dis l iked for i t s imp acton so c iety

Resented for the nation’s

dependenc e on i t (Why ?)

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