Theme 3: MNE Entry Modes
FDI Motives → Why do MNEs invest abroad?
Dunning (1998) - Location and the multinational enterprise: A neglected factor?
Main idea: Analysis of global business context trends and their implications
Developments in FDI motivations:
Traditional investment motives
● Natural Resource seeking
○ 1970 Looked at basic resources
○ 1990 Looked for local opportunities to improve quality
● Market seeking
○ 1970 Tendency to regionalize
○ 1990 Large growing and regional markets
● Efficiency seeking
○ 1970 Lowest cost
○ 1990 Skilled employees
Modern Investment motive
● Strategic asset seeking
○ 1970 Protect knowledge
○ 1990 Geographical dispersion of knowledge
3 trends of global business context:
1. Emergence of intellectual capital (knowledge) as key wealth creating asset in
most industrialized nations
2. Increasing globalization of economic activity due to transport and communication
technology and the reduction of trade/investment barriers
3. Increasing emphasis on alliance capitalism: both within and between firms and
with the government to achieve value creating goals
Factors reinforcing these trends
1. Technological change
2. Renaissance (renewal) of market economy
, Gao, Murray, Kotabe, and Lu (2010) - A ‘‘Strategy Tripod’’ Perspective On Export
Behaviors: Evidence From Domestic And Foreign Firms Based In An Emerging
Economy
Main idea: investigates the determinants of export propensity (to export or not) and export
intensity (export sales as percentage of total sales).
Export is quickest & easiest way to enter foreign markets
● Requires fewer organisational resources
● Greater flexibility for managerial actions
● Lower business risks
Institutional environment has significant effect on export behaviours above and beyond the
impact of firm competencies and industry factors
Firm competencies have differential effects on firms’ export behaviour
● If you have no distinct firm competences but only base operation on cost
leadership you will not benefit financially from exports
● Pure cost leadership competencies are not sufficient because of rising wages
in countries such as china and intense competition from other low cost
countries
Strategy Tripod
1. Resource based view → Cost leadership & Differentiation competencies
2. Institutions based view → Free market mechanism & Intermediate institution
development (Highest explanatory power)
3. Industry based view → Industry export orientation & Industry instability
Isomorphic strategy: firms sharing same environment; adopt similar practices (doing what
others are doing)
Entry modes choice
Definition: Choice of the form of operation firms use to enterforeign markets
Why is it crucial? Important implications in terms of...
● Resource commitment
● Exploration vs exploitation strategies
● Risk and Uncertainty
● Learning and Knowledge trafers
FDI Motives → Why do MNEs invest abroad?
Dunning (1998) - Location and the multinational enterprise: A neglected factor?
Main idea: Analysis of global business context trends and their implications
Developments in FDI motivations:
Traditional investment motives
● Natural Resource seeking
○ 1970 Looked at basic resources
○ 1990 Looked for local opportunities to improve quality
● Market seeking
○ 1970 Tendency to regionalize
○ 1990 Large growing and regional markets
● Efficiency seeking
○ 1970 Lowest cost
○ 1990 Skilled employees
Modern Investment motive
● Strategic asset seeking
○ 1970 Protect knowledge
○ 1990 Geographical dispersion of knowledge
3 trends of global business context:
1. Emergence of intellectual capital (knowledge) as key wealth creating asset in
most industrialized nations
2. Increasing globalization of economic activity due to transport and communication
technology and the reduction of trade/investment barriers
3. Increasing emphasis on alliance capitalism: both within and between firms and
with the government to achieve value creating goals
Factors reinforcing these trends
1. Technological change
2. Renaissance (renewal) of market economy
, Gao, Murray, Kotabe, and Lu (2010) - A ‘‘Strategy Tripod’’ Perspective On Export
Behaviors: Evidence From Domestic And Foreign Firms Based In An Emerging
Economy
Main idea: investigates the determinants of export propensity (to export or not) and export
intensity (export sales as percentage of total sales).
Export is quickest & easiest way to enter foreign markets
● Requires fewer organisational resources
● Greater flexibility for managerial actions
● Lower business risks
Institutional environment has significant effect on export behaviours above and beyond the
impact of firm competencies and industry factors
Firm competencies have differential effects on firms’ export behaviour
● If you have no distinct firm competences but only base operation on cost
leadership you will not benefit financially from exports
● Pure cost leadership competencies are not sufficient because of rising wages
in countries such as china and intense competition from other low cost
countries
Strategy Tripod
1. Resource based view → Cost leadership & Differentiation competencies
2. Institutions based view → Free market mechanism & Intermediate institution
development (Highest explanatory power)
3. Industry based view → Industry export orientation & Industry instability
Isomorphic strategy: firms sharing same environment; adopt similar practices (doing what
others are doing)
Entry modes choice
Definition: Choice of the form of operation firms use to enterforeign markets
Why is it crucial? Important implications in terms of...
● Resource commitment
● Exploration vs exploitation strategies
● Risk and Uncertainty
● Learning and Knowledge trafers
