The Multinational Enterprise (MNE)

Pushpakaran, K
MBA (SJP), PhD (Reading)

12th March, 2012

The Multinational Enterprise (MNE)

Objective

The nature of multinational enterprises

Strategic management and multinational enterprises

Objectives
Characteristics of MNEs Internationalization process

Why firms become MNEs?

Strategic philosophy of these firms Introduction to a country/firm framework for examining a firms competitiveness

The Multinational Enterprise (MNE)

A company headquartered in one country but with operations in one or more other countries

MNEs often represent the fact that they are foreign-held.

Table 1. 1:

The Worlds Largest 500 Multinational Enterprises, 2010

The Worlds Largest 500 Multinational Enterprises, 2011

Fortune 2011

The Worlds Largest 50 Multinational Enterprises, 2011

Fortune 2011

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

Figure 1.1

The Multinational Enterprise and Its Environment

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 whollyowned subsidiaries?
Foreign markets are risky

Figure 1.2

Entry into Foreign Markets: the Internationalization Process

License Export via Agent / Dealers via Own Sales Reps Local Packaging & Assembly FDI Mergers & JVs Acquisitions Greenfield (Totally New)

Figure 1.3

Entry into Foreign Markets: the Internationalization Process

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

Why do Firms become MNEs?

A few examples:
Pakistan starts onion exports to India
Canada food imports Chinese Geely buys Volvo form Ford for $1.8b

Tata Motors buys Jaguar, Land Rover

Strategic management and MNEs

Figure 1.4

The Strategic Management Process in Action

 The goal of external environmental analysis is to identify opportunities and threats that will need to be addressed

Analysis of the External and Internal Environment

The purpose of an internal environmental analysis is to evaluate the companys financial and personnel strengths and weaknesses

Formulation of Objectives and Overall Plan

Internal and external analyses will help identify long-term (25 years) and shortterm (< 2 years) goals

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

Evaluation and Control of Operations

Progressis periodically evaluated and changes are made in the plan to accommodate changing circumstances and new information

Framework for Global Strategies: the FSA/CSA Matrix

 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.

Building Blocks in our International Business

Country-Specific Advantages (CSAs): country factors

Natural resource endowments (minerals, energy and forests), the labour force and associated cultural factors, etc.

Figure 1.5

The Basic Components of International Business

Figure 1.6

The FSA-CSA Matrix

The Competitive Advantage Matrix

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

Taking Sri Lanka to the World

Organization should come first
Professionalized a group that should have loyalty over competence Focus on long-term value Succeed acquisitions in Sri Lanka and abroad Gear the group to compete in a global marketplace