MNE Management Review Questions with Complete Solutions Rated 100%

MNE Management Review Questions with Complete Solutions Rated 100% Global Multinational Enterprises (MNE) - Answers a.Must have "substantial direct investment" in foreign countries. b.Must have "active management" of overseas operations. MNE Influence, Some statistics according to the UN: - Answers Over 65,000 MNEs, Approx. $16 trillion in revenues why companies are motivated to expand overseas? - Answers Secure key supplies - e.g. Aluminum companies seeking bauxite Traditional Motivations - Answers 1. Secure key supplies 2. Market-seeking behavior 3. Access low-cost factors of production. Prior to the 1980s, the product life cycle (PLC) theory could explain much of a company's motivation to internationalize. - Answers True Factors influencing a company's motivation to internationalize (i.e. why overseas operations became more important): - Answers 1. Increasing scale economies, R&D investments, and a shortened PLC. 2. The MNE's global scanning and learning capabilities - alternatives regarding labor, technology, etc. 3. Increased competitive positioning allowing cross-subsidization of markets Cross-subsidization of markets - Answers using profits of a subsidiary in one market to subsidize an unprofitable subsidiary in another. Prerequisites for Becoming an MNE - Answers a. Must have motivation to invest overseas b. Must have strategic competencies/ownership-specific advantages c. Must have internal organizational capabilities Process of Internationalization, The Learning Process of foreign market entry (1977) - Answers 1. Firm makes initial commitment of resources. 2. Gains knowledge of local mkt, customers, etc 3. Improved ability to evaluate current operations and opportunities 4. Able to make add'l investments thus increasing effectiveness Four evolutionary stages (mentalities) of internationalization: IMGT - Answers 1. International Mentality 2. Multinational Mentality 3. Global Mentality 4. Transnational Mentality International Mentality - Answers 1. Overseas operations seen as "outposts." 2. Heavily influenced by the PLC Multinational Mentality - Answers 1. Overseas operations increase in importance as sales/profits increase. 2. Products/technology modified to suit specific foreign mkt. Global Mentality - Answers 1. Reduce inefficiency in multinational mentality by producing for a "world market" 2. Assumes national tastes are somewhat similar 3. Requires increase levels of coordination Transnational Mentality - Answers Emerged due to the need to be locally responsive while developing global products Globalization is the continuation of a trend that began over 100 years ago. - Answers True Forces Leading to Change - Answers 1. Economies of Scale 2. Economies of Scope 3. Factor Costs 4. Liberalization of World Trade Agreements Economies of Scale - Answers Use of large-batch or continuous-process technologies 2. Achieved through high volume production 3. Production levels exceed domestic sales. Economies of Scope - Answers 1. Possible due to improved communications and transportation networks 2. Rise in use of large trading companies (e.g. Panasonic) Factor Costs - Answers 1. need to find cheaper sources of factors (i.e. raw materials, labor, capital) 2. Finding cheap labor - a constant challenge. Labor cost/wage rates increase as labor force becomes educated. Typical life cycle of a country as a cheap source of labor is 5 years. - Answers TRUE Liberalization of World Trade Agreements - Answers Agreements facilitate of global expansion (i.e. through WTO, EU) External triggers - Answers Major technological innovations (semiconductors, etc.) resulting in changes in industry's economics (e.g. cell phones) Internal restructuring - Answers 1. Done by firms lacking external forces for change 2. Firms go global to take advantage of economies of scale (e.g. automobiles) 3.Achieved by use of rationalized production, streamlined/standardized products Global Chess - Answers Defined as: A competitive strategy where a firm's worldwide operations are managed as interdependent units using a coordinated global strategy. Factors driving current trend towards localization - Answers 1. Cultural differences - nationality still plays important role 2. Government demands - especially those of host governments 3. Growing Pressures for Localization Conflicting objectives of MNE •MNEs main objectives - Answers 1. Unrestricted access to global markets and resources 2. Freedom to integrate operations across national borders 3. The right to coordinate and control all operations. Global Industries Defined as - Answers 1. Industries historically driven by economic forces that require scale economics to remain competitive Global Industries - Answers 1. Economic factors more important than environmental factors. 2. Use of a global strategy 3. Evidenced by: