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INTRODUCTION International growth strategies are equity-based expansions by corporations to acquire ownership in foreign firms that can be used to further the corporate goals. These equity based strategies are also referred to as direct investments where the parent multinational corporation (MNC) acquires sufficient equity in an existing or newly established foreign company, to incorporate the affiliate within the parent MNC's global strategies (Griffin and Pustay, 1999). International growth can be accomplished by means of new start-ups, expansion of existing affiliates, partial or complete acquisitions, mergers with other companies, or joint ventures. This archival-based study examines US companies' equitybased international growth strategies, motives and risks. (1) TRENDS AND VOLUME In the 25 years following 1970, the world GDP grew by about 200%, and merchandise exports by fewer than 400%, but international direct investments grew by over 700%. The U.S. numbers are equally impressive. International mergers and acquisitions by U.S. corporations rose from $3.27 billion in 1980 to $410 billion in 1997, which is close to half the total mergers and acquisitions announced by corporate America in 1997. This trend of international growth has led to a significant rise in the foreign share of U.S. companies' total revenues, which more than doubled from 11% in 1985 to 23% in 1997 for the median S&P 500 company. The foreign share of total sales for S&P 500 companies has grown to an impressive 34%. This growth has been brought about by sales of worldwide affiliates of U.S. MNCs more so than exports of U.S. made products. The growth has resulted in impressive presence by some U.S. companies abroad. For instance, General Electric became the largest private employer in Singapore, employing over 100,000 Singaporeans. General Motors, through its over 50 affiliates in Mexico, has become the largest private employer in Mexico, employing 85,000 full time workers. The growth has not been confined to industrial companies, but extends to services as well. Merrill Lynch's $4.6 billion acquisition of Britain's Mercury Asset Management in 1997 is viewed as an example of the rapid and substantial international growth by the U.S. financial services industry.. Another service industry that has been experiencing significant international expansion is the managed health- care industry. Major U.S. health-care insurance companies are investing in health-care companies around the world. Latin America has more health maintenance organizations than the U.S. and an estimated 60 million enrollees. Managed-care companies like Cigna and Aetna have been investing hundreds of millions of dollars in health-care companies in Latin America and elsewhere. Even world-class companies that have maintained a tradition of not partnering with foreign affiliates have come to change their mind, Bechtel Group, Inc., has recently diversified into new markets and found it necessary to partner with foreign and other international companies experienced in these new services. According to a senior executive in Bechtel, "ten or 15 years ago, we would never have used a local partner, but today it is absolutely imperative."

STRATEGIC PURPOSES While the ultimate purpose for a corporate growth strategy is long-term strength and performance, the specific goals may vary depending on the company, industry, customers and suppliers, domestic market, and production technology. The following is a discussion of some of the goals. Pursuing Growing Markets U.S. companies seek new markets in emerging economies and recently privatized industries. ICN Pharmaceuticals has been pursuing a vigorous growth strategy by acquiring 60 to 100% equity in pharmaceutical plants in the growing markets of East European countries. In 1997, Eastern European sales accounted for 58% of ICN's revenues. In the financial service industry, Mellon Bank made a 75% acquisition of Newton Management in the United Kingdom to match its rival Fidelity Investments in Europe and to take advantage of the promising market for asset management in the privatized European pension system. The water and sewage distribution and management industry is being privatized in Europe, Latin America and elsewhere and is currently valued at $300 billion a year. Enron Corporation recently made acquisitions in Europe and Latin America to take advantage of the growth in this newly privatized industry. The growth of the managed health-care industry in countries like the Philippines, Switzerland, Chile, Mexico and Brazil is attracting investments by major U.S. health-care companies. As privatization grows and new industries prosper worldwide, global growth to take advantage of such new markets will continue. Global Competitiveness World-class organizations that compete anywhere and everywhere seek to globalize and integrate all aspects of their operations in order to broaden their global presence and strengthen their preparedness to procure and deliver products and services worldwide. Companies in the oil industry, for instance, like Chevron and Exxon, have been global since they were founded, and continue to seek more globalization. They expand globally to secure sources of oil and gas and lower the costs of their upstream operations and also to expand in the distribution and retail markets to grow in the downstream part of their industry (Beaubouef, 1998). In the automotive industry, General Motors has been pursuing a growth strategy to bolster its global competitiveness. GM has made acquisitions in a group of automotive companies in different countries in order to strengthen its competitiveness in all major automotive markets worldwide. According to a senior GM executive, "this is a global marketplace; to survive, you have to have a broader range of product offerings and technological expertise, so that we can move fast when necessary," GM's alliances make it possible for the company to develop special products for special markets and exchange technology rapidly and on demand. Many other world-class companies in different industries have been pursuing similar strategies. Locating Near the Market

International companies are finding out that locating near the market and lowering marketing costs is as important, and possibly more important, than locating near input sources and lowering upstream costs. Since the U.S. is the largest market for automobiles in the world, and with Mexico's proximity to the U.S., international auto makers from the U.S. and other countries find it strategically advantageous to locate in Mexico. This is part of the reason why imports of made-in-Mexico cars reached 15% of total U.S. auto market in 1998. Locating near the market is a reason behind many companies' international growth strategies. Revenue Growth When U.S. companies' domestic market reaches saturation or decline, these companies look to international markets to sustain revenue growth. For example, the U.S. market for ready-to-eat cereals declined from $8 billion in 1994 to $7.2 billion in 1998. Accordingly, Kellogg Corporation intensified its growth in Europe by means of opening plants in Italy, Denmark and Latvia, among others. In addition to market diversification, U.S. food manufacturers find Europe an attractive place to produce and market food products because of Europe's higher retail prices, less expensive advertising, and fewer large competitors. The same is true in the retail industry where companies like Toys-R-Us, Office Depot and Wal-Mart have been expanding their revenues by expanding in Europe, North and South America, Asia, and elsewhere. Resource Acquisition International growth strategies are often for the purpose of acquiring suppliers of vital resources. The purpose here is not to engage in a strategy of complete globalization, as discussed above, but simply to acquire suppliers of materials not available otherwise or suppliers of low-cost components to meet intense price competition in the product market. (a) In the case of USX-Marathon's acquisition of Canada's Terragon Oil & Gas in 1998, the purpose was to increase Marathon's oil and gas reserves by about 18% and give it about three million acres of unexplored area, a substantial addition of resources the company could not forego. (b) When companies face intense price competition, they find it necessary to acquire lowcost component suppliers. This has become the case in the electronics industry, which has recently experienced unprecedented end-product price competition. Follow a Major Customer When a major company locates operations abroad, key suppliers often follow and establish operations in the same region in order to maintain that company's business. When auto companies established operations in Mexico, many component suppliers followed. That is why TRW of Cleveland, the supplier of steering columns, and Johnson Controls of Milwaukee, the supplier of seats, followed their major clients and set up manufacturing and distribution operations in Mexico. Another example of companies following their major customers abroad is from the market-research industry. When U.S. MNCs expanded in

Latin America, their market-research suppliers followed them. In the words of a market research executive: "if my clients in the United States are going to Latin America, I should service their needs and go down there, too" (Fellman, 1998, p. 15). In the appliance industry, GE and Whirlpool have been expanding their appliance manufacturing operations overseas. GE's affiliate in Mexico, Mabe SA, produces a million gas ranges and 650,000 electric ranges a year bound for the U.S. market. Along with the appliance makers, their suppliers are also investing in Mexico. By adding electric ovens to its line of products, Mabe will lure U.S. glassmaker Gemtron Corporation of Sweetwater, Tennessee, to open a plant there. USX's U.S. Steel supplies more than 100 tons of sheet metal to Mabe every day. So, U.S. Steel set up a plant 50 yards from Mabe's loading dock. Harper Wyman Company, maker of burners, and Maxitrol Company, maker of pressure regulators, also followed their important client and built plants in Mexico. Upgrading Production Technology U.S. companies may find it necessary to expand internationally to take advantage of upgraded production technology that may not be available in the U.S.. Chrysler Corporation (prior to its merger with Daimler) established a $315 million plant in Brazil to take advantage of the just-in-time modular manufacturing and assembling technology, which Chrysler could not do in the U.S. because of union opposition. Situated about two miles near its key supplier, Dana Corporation, Chrysler's plant can take advantage of a radical manufacturing innovation of receiving a "rolling chassis" from Dana with 320 parts already assembled onto it, all within 108 minutes of getting the order by computer. This technology makes it possible for Chrysler to operate with fewer people, makes its factory smaller, and reduces upfront investment and start-up time. This is a technology that enables auto manufacturers to build more affordable vehicles for markets worldwide. GM's alliance in Japan (Suzuki, Isuzu and Fuji Heavy equipment) offers GM technological expertise to develop "value cars," midsize all-wheel utility vehicles, and diesel auto engines to service markets in Asia and Europe that GM would not have been able to service otherwise. Extending Home Country Competition Internationally With large MNCs becoming increasingly global, the field for competition is no longer confined to the home country. The famous competition between Coca-Cola and Pepsi is now "everywhere." In 1998, Coca-Cola attempted to acquire France's Orangina, the maker of non-alcoholic beverages, to expand its market share in France. The timing reveals that Coca-Cola's purpose was also to compete against Pepsi, which had shortly beforehand acquired Tropicana, the juice maker, which has a strong market presence in France. It was speculated that part of Coca-Cola's purpose was to terminate Pepsi's reliance on Orangina's bottling and distribution services in France. In the financial service industry, when Morgan Stanley started looking to expand operations in Japan, the company was trying to match a key competitor, Travelers Group, which had just made an acquisition of Nikko's Securities, one of Japan's big three brokerage firms. The strategic purpose for many U.S. corporations' international expansion plans is to follow their home-country rivals and extend the competition to markets abroad.

MOTIVES AND INDUCEMENTS In addition to strategic purposes, special motives and inducements also motivate MNCs' international growth plans. These motives or inducements are time-period specific, company specific, or region specific. Drop in Local Currency When a country's economy and currency experience a sharp decline similar to the one that occurred in many Southeast Asian countries in the late nineties, local assets, such as factories and plants, become attractive bargains when measured in U.S. dollars. If this situation coincided with an MNC's strategy of vertical integration or global competitiveness, the company would be motivated to make an acquisition of a local manufacturer, supplier or partner. This is what motivated Tekronix electronics in Oregon to make a 100% acquisition of a computer printer manufacturer and supplier in Malaysia and Singapore. Gillette Co. took advantage of the drop in Korea's currency in 1998 and acquired battery factories and distributors to consolidate and expand its market. GM took advantage of the drops, in the exchange rate for Japan's Yen to make acquisitions in Japan and set up an alliance with an 18% share of the auto market in Japan, second only to Toyota's alliance (Toyota, Daihatsu and Hino). A drop in local currency can attract many international acquisitions to support a variety of international growth strategies. Local Content Rules MNCs are motivated to establish affiliates in regions where "local content" rules are followed. This is especially important when the MNC's major customers are public authorities such as local and district governments, which tend to be sensitive to political sentiments and are fearful of political backlash if they awarded big contracts to foreign companies. MNCs that bid on public transportation equipment and service projects in Europe set up European affiliates to abide by the "local content" sentiments at the local government level. Proximity and Expediency In late 1990s, Mexico started overtaking English-speaking countries like Ireland and India as the primary foreign location for affiliates of data processing companies like Datamark, Inc., EDM, Newport Beach Data, and NPC. These and other companies process numerous data-processing transactions such as credit card purchases and billing, bank transactions, airline reservations, sales documentation, insurance claims, and many more. Among the key motives for DP companies locating in Mexico is the proximity of the region near the U.S. border. The proximity makes it relatively easy and efficient for parent companies to maintain the increasingly advanced technology of DP processors, scanners, microwave transmitters and paper sorters that can break down and cause expensive delays. For example, NPC's Mexican affiliate processes $500 million worth of airline flight receivables daily. Any delay due to extended equipment failure in far away places can be very expensive. The proximity of the region, coupled with the bilingual workforce, the up-to-date infrastructure, and the

relatively lower wage rates have motivated many companies including GE Capital to set up data processing operations in Mexico. Government Incentives and Inducements Host governments, in developing and developed countries alike, are often generous in the packages of incentives given to international companies to attract their investments. They recognize that international companies bring capital, technology, world-class expertise, and the prospect of exporting that will earn the host country hard-currency revenues. Host governments typically allow MNCs tax-free earnings for the first few years of operations, subsidized services, low interest loans, and many other inducements that often anger the local business community. Governments also expand foreign firms' investments in deregulated industries, reduce red tape, simplify government procedures for joint ventures and acquisitions, and exercise controls over local in-land officials who may be unfriendly to foreign companies. The inducements often influence MNCs in selecting one region versus another. RISKS AND DIFFICULTIES While grand corporate goals and a variety of business inducements guide international growth strategies, they are not without risks and difficulties. Currency Fluctuations The value of international earnings is contingent on currency fluctuations. When the dollar appreciates or the host country's currency depreciates, the dollar value of repatriated profit declines. Coupled with a possible decline in U.S. exports, the rise in the U.S. dollar may reduce a U.S. company's overall profitability, especially for companies with substantial international exposure like Coca-Cola, which has foreign sales equal to 66% of total sales. While the drop in foreign currencies' exchange rate is an inducement to international acquisitions (as discussed earlier), it is also a source of risk. Gillette Co. felt the risk in 1998 when the drop in the value of currencies in emerging markets where the company earns 35% of its revenues resulted in asignificant drop in the company's sales revenues and profit growth. Unpredictability of Host Government Policies While industry is universally at the mercy of government regulations, multinational companies face the added risk of dealing with so many foreign governments. This is especially difficult where the host government is not a democratic system with transparent policies and legislature. In a surprising change of course, the government in China announced in 1998 a list of new impediments to foreign companies. The unexpected new restrictions included rejecting international safety certificates, denying licenses to foreign insurance companies, restricting profit repatriation, requiring the purchase of locally made capital equipment, banning joint ventures from certain industries, and forbidding companies such as Avon, Mary Kay and Amway from direct sales. Such abrupt change of mind can be a blow to MNCs that have been investing heavily in China. An example is Sprint, which has

invested $30 million to set up a joint venture with the state-owned China Unicom to set up a telephone network in Tianjin, China's fourth largest city. The announcement to ban joint ventures from the telecom industry caught Sprint at an early stage of involvement when it had earned only 10% of what it needed to break even. Diversity of Business Restraints U.S. companies abroad face by far more government restraints in many aspects of their operations than they do in the U.S., which inhibit the company's ability to materialize the benefits of international growth. Firm restrictions are found in all countries, developing and developed. For example, Office Depot has 45 stores outside North America. The company faces difficulties in France where the government does not like large retail stores. This reduces the company's ability to gain the benefits of economies of scale. Furthermore, the French government does not allow price-cutting as a means of competition and attraction of new customers. This further reduces the company's ability to increase total revenue through aggressive cost-cutting strategies. Other restrictions include job-creation quotas, export minimums to generate hard currency, limits on local market growth, wage and price controls, limits on capital outflows, and controls over technology transfers (Hodgetts & Luthans, 1997). Difficulties with Local Partners In dealing with foreign partners, U.S. MNCs experience two types of problems, dependability and compliance. With regard to dependability, U.S. companies with international mergers and alliances face the risk of losing their partners upon encountering business discords. Foreign partners may quit the partnership, take the employees and customers with them, and possibly join a competitor US company overseas. Price and Coopers went through this experience when some of the company's foreign partners quit the partnership because they did not want to bear the consequences of liability lawsuits against the parent company in the U.S.. Furthermore, some of the local partners sought new partnerships with Price and Coopers's competitors, like Arthur Andersen, and Ernst & Young. With regard to the second partnership problem, foreign partners sometimes find it difficult to comply with the terms of partnership regarding importing materials and components from the U.S. parent company, and making profit or royalty payments in U.S. dollars. Some U.S. MNCs insist on supplying the foreign subsidiaries with their own developed or acquired components and materials. To the local partner, this amounts to imports and carries with it all the import-related legal, political and transactional difficulties. As for making profit or royalty remittances in hard currency, this is an issue that local partners have serious difficulty with during times of appreciation of the value of the U.S. dollar or when local banks put limits on hard currency availability. Upon encountering such difficulties with a U.S. parent company, these partners often find support from their local communities. During South Korea's economic recession in the late 1990s, local television programs tried to "determine how much hard currency left the country every time a Korean ate a McDonald's

Big Mac" (Schuman & Gibson, 1998, p. B6). Such difficulties with partners have led some big U.S. companies to altogether cease doing business in a host country. That's what happened to Wendy's in 1998 (Ibid.) The Price for Favorable Terms of Acquisition U.S. MNCs in the 1990s acquired many government-owned business firms in East European countries. In their zeal to privatize their economies, host governments often offered MNCs favorable terms and inducements, as discussed earlier. In return for the favorable terms, however, MNCs often agreed to provisions that made the businesses burdensome and unprofitable. When ICN Pharmaceuticals made acquisitions in East Europe, the company agreed not to repatriate affiliates' profits for the first five years and not to downsize the affiliates' manpower. This helped push the company's East European employment to 80% of its worldwide work force. Accepting local-manufacturing standards also produced a most unfavorable production environment. ICN discovered that the acquired companies fell below industry standards, persisted in poor quality procedures, maintained serious risks of contamination, and produced medicines with inconsistent ingredients (Rundle & McKay, 1998). CONCLUSION International growth strategies by U.S. companies have been robust and appear to continue to be so. A recent survey by Pricewaterhouse Coopers found that nearly 50% of fastgrowing companies plan an international acquisition over the next three years. While economic difficulties abroad produce risk, they also produce opportunity. Experienced MNCs manage their global operations with the agility to maximize opportunities and manage the risks. A key factor influencing success of the international experience is the selection of the growth strategy and the factors contributing to the choice. Should international equity-based growth be conducted by means of complete acquisition, merger, partnership, or joint venture? Furthermore, what organizational and environmental conditions contribute to the success of the strategy? We submit that the moderating conditions can be broken into two categories: Organization-specific (internal), and environmental (external). The internal factors include stage of international involvement and past experiences, business-level strategy, risk attitude, geo or ethnocentric organization culture, resources, and commitment to globalization. External factors can be broken into industry and host country conditions. Industry-specific issues include complexity of the industry, technology, intensity of competition, infrastructure, and degree of local market controlled by foreign companies. Host country issues include culture, membership in a free trade area (FTA), law, economy, and growth potential. Research by Kobrin (1994) addressed the internal issue of geocentric organization culture and its impact on international strategy and structure. More studies of the same caliber are needed to address the variety of issues influencing international strategy choice and success. REFERENCES

(1) Archival references include Wall Street Journal, Economist, Business Week, Industry Week, and others. Due to the length of the list, it is not included in the references. The list is available upon request from the author. Griffin, R., & Pustay, M. (1999). International Business: A Managerial Perspective. Reading, Massachusetts: Addison-Wesley. Beaubouef, B. (1998). Top companies share similar objectives and strategies. Oil and Gas Investor, 18 (4), 19-20. Fellman, M. (1998). U.S. market researchers follow their clients south. Marketing News, 32 (17), August 17, 15. Hodgetts, R., & Luthans, F. (1997). International Management. New York: McGraw Hill. Kobrin, S. (1994). Is there a relationship between a geocentric mind-set and multinational strategy? Journal of International Business Studies, 25 (3), 493 - 511. Rundle, R. & McKay, B. (1998). ICN views Eastern Europe as good medicine for it. Wall Street Journal, July 14, B4. Schuman, M., & Gibson, R. (1998). Following Wendy's exit, Koreans munch on Winner's. Wall Street Journal, November 27, B1, B6. Suhail Abboushi is an associate professor of business administration at Duquesne University's A. J. Palumbo School of Business where he teaches and researches in the areas of management and international business. COPYRIGHT 2000 American Society for Competitiveness COPYRIGHT 2008 Gale, Cengage Learning