MNC Strategy Exam 1 Questions and Answers 100% correct

MNC Strategy Exam 1 Questions and Answers 100% correct MNE Must have "substantial direct investment" in foreign countries. Must have "active management" of overseas operations Influence | Statistics according to the UN: Over 130 million firms. Foreign affiliates of MNEs generated approx. $8trillion in value. Previous Play Next Rewind 10 seconds Move forward 10 seconds Unmute 0:04 / 0:15 Full screen Brainpower Read More Traditional Motivations Secure key supplies (tangible products, services) Market-seeking behavior (unique skill, core competence) Access low-cost factors of production Secure key supplies Aluminum companies seeking Bauxite. Prior to the 1980s: The product life cycle(PLC) theory could explain much of a company's motivation to internationalize. After the 1980s the PLC does not explain much about the reasoning for internationalization today. Emerging Motivations Increasing scale economies, R&D investments, and a shortened PLC. The MNE's global scanning and learning capabilities-alternatives regarding labor, technology, etc. Increased competitive positioning allowing cross-subsidization of markets Cross-subsidization of markets Using profits of a subsidiary in one market to subsidize an unprofitable subsidiary in another. Prerequisites for Becoming an MNE: Must have motivation to invest overseas. Must have strategic competencies/ownership-specific advantages. (finances) Must have internal organizational capabilities. (ability to coordinate, distribution) Process of Internationalization The Learning Process of foreign market entry: 0. Company did research, ready to commit. i.Firm makes initial commitment of resources. ii. Gains knowledge of local market, customers, etc. iii. Improved ability to evaluate current operations and opportunities. iv. Able to make additional investments thus increasing effectiveness. Four evolutionary stages (mentalities) of internationalization: 1. International Mentality 2. Multinational Mentality 3. Global Mentality 4. Transnational Mentality International Mentality Overseas operations seen as "outposts." Heavily influenced by the PLC. Multinational Mentality Overseas operations increase in importance as sales/profits increase. Products/technology modified to suit specific foreign mkt. Global Mentality Reduce inefficiency in multinational mentality by producing for a "world market". Assumes national tastes are somewhat similar. Requires increase levels of coordination. Transnational Mentality Emerged due to the need to be locally responsive while developing global products. Forces for Global Integration and Coordination | Statement Globalization is the continuation of a trend that began over 100 years ago. Forces Leading to Change Economies of Scale Economies of Scope Factor Costs Liberalization of World Trade Agreements Economies of Scale (volume) Achieved through high-volume production. Use of large-batch or continuous-process technologies. Production levels exceed domestic sales. Economies of Scope (variety) Possible due to improved communications and transportation networks. Rise in use of large trading companies (e.g.,Panasonic). Factor Costs Need to find cheaper sources of factors (i.e.,raw materials, labor, capital). Finding cheap labor - a constant challenge. Labor cost/wage rates increase as labor force becomes educated. Liberalization of World Trade Agreements Agreements facilitate of global expansion (i.e.,through WTO, EU, NAFTA/USMCA). NOTE: No country remains a cheap source of labor indefinitely (e.g., labor costs in China now increasing). Labor costs eventually become expensive. "Spiral" -Company will pay for higher skill OR -Government will China The world's factory floor (1980s) External triggers Major technological innovations (semiconductors, etc.) resulting in changes in industry's economics (e.g.,cell phones). Occurs outside the industry, forces organizations to change how they operate. Internal restructuring Done by firms lacking external forces for change. Firms go global to take advantage of economies of scale (e.g.,automobiles). Achieved by use of rationalized production, streamlined/standardized products. Organizations must push to change to remain competitive. Global Chess A competitive strategy where a firm's worldwide operations are managed as interdependent units using a coordinated global strategy. (all operations are viable) Factors driving current trend towards localization: Cultural differences Government demands Growing Pressures for Localization Government demands "Positives" of MNE/Host Government relationship "Negatives" of MNE/Host Government relationship Conflicting objectives of MNE vs. Host government "Positives" of MNE/Host Government relationship MNE seen as source of funds, technology, expertise Host government seen as key to access local markets and resources "Negatives" of MNE/Host Government relationship Host government belief that MNE operations result in: Social disruption - relocation from rural to urban areas Rising consumerism Rejection of indigenous values Breakdown of traditional community structures Large MNEs seen as political threat to small local governments Conflicting objectives of MNE vs. Host government MNEs main objectives: Unrestricted access to global markets and resources Freedom to integrate operations across national borders The right to coordinate and control all operations. HOST GOVERNMENT main objectives: Competitive economic development (using "national champion" or flagship companies). Global Industries Defined as: Industries historically driven by economic forces that require scale economics to remain competitive. Economic factors (costs) more important than environmental factors (political, cultural, legal). Use of a global strategy Evidenced by: •Homogenization of national markets (treat markets the same) •Centralized, scale-intensive manufacturing and R&D •Worldwide exports of standardized global products e.g., Consumer electronics up to mid-to late-1980s Multinational Industries Defined as: Industries in which localizing forces of national, cultural, social and political differences dominate development of industry characteristics. Differences in culture etc., require differentiated products/strategies on country-by-country basis. Use of multinational strategies which respond to local market sensitivities. Cater to differences, focus on modifying products to fit markets. e.g., food production International Industries Defined as: Industries in which technological forces are dominant and the need to develop and diffuse innovations is critical to the firm's competitive position. Competition driven by ability to develop and harness new technology. Use of international strategy -new products developed at home using new technology then distributed to worldwide affiliates. Driven by innovation (new product development) Transnational industries Defined as: Industries in which companies respond effectively to all diverse and conflicting forces at the same time to manage efficiency (costs), responsiveness and innovation. No longer able to compete on basis of one dominant capability. Responsiveness using local, tailor-made products in each overseas market no longer feasible. Global customers demand sensitivity simultaneously with lower costs and high quality of global products. Center of Gravity The set of environmental forces that have most significant impact on firm's strategic tasks. Three Strategic Objectives/goals required of firms for worldwide advantage: Must build global-scale efficiency in existing activities. Must develop multinational flexibility to manage country-specific risks and opportunities. Must create ability to learn from, and exploit its international exposure. Sources of global competitive advantage to exploit: Scale economies National differences Scope economies Global Efficiency Overall efficiency - ratio of value of outputs (revenues) to value of inputs (costs) Efficiency results from either reducing costs and/or enhancing revenues.