LOCATION. International Business

Transcription

1 LOCATION International Business

2 Institutions and the OLI paradigm of the multinational enterprise By John H. Dunning and Sarianna M. Lundan Summary by Hjálmar Vilhjálmsson

3 INTRODUCTION The article was published in Springer Science + Business Media 24. January Understanding of the different forms of Multi- National Enterprises (MNEs). Framework that examines how an institutional dimension can be incorporated - OLI paradigm.

4 BEFORE WE START... WHAT IS MNE THEORY? Stands for Multi-National Enterprise. MNE is a company, or a corporation, that operates in at least two countries. MNE is a result of previous Foreign Direct Investment (FDI).

5 WHAT IS OLI PARADIGM? It is a framework for analyzing the decision to engage in Foreign Direct Investment (FDI), based on three kinds of advantage that FDI may provide in comparison to exports, namely: Ownership Location, and Internalization

6 FURTHER ABOUT OLI PARADIGM The design of a firm may be seen to affect all three parts of the OLI paradigm. 1. Link between economical growth at a national level and location-based (L) advantages in the OLI. 2. The internationalization (I) factor is institutionalized at the micro level. 3. The O-advantages are most difficult to deal with has to be distinguished between assets and transaction based factors.

7 MAIN RESULTS Helps to analyze and determine the boundaries of MNE s. Introduction of a framework to examine institutional dimensions. Incorporates dimensions into the three OLI paradigm components. Helps understanding what determines MNE s behaviour and its effects on home and host countries. The paper reasons that international knowledge and experience makes the difference between the winners and losers at the global market.

8 CONCLUSIONS OLI paradigm helps to evaluate how countries and firms can affect the value adding possibilities. The MNE network should be considered as a coordinator of global systems of added value. Engaging in cross-border activity provides many opportunities. MNE fronts a lot of challenges from both NGO and governmental stakeholders. Institutional analysis both micro and macro offers new ways to confront the complexities of today's global economy.

9 EXAMPLE OF ICELANDIC COMPANY ÍSLENSKA ÚTFLUTNINGSMIÐSTÖÐIN (IEC) / REYKTAL AS IEC - established in a seafood trading company focused on shrimp and scallops. Late 80:s IEC got involved in peeling plant operation. The Icelandic ITQ system (Individual Transferable Quota System) blocked access of the raw material. Year 1997 IEC was forced to reduce its activity or invest abroad to ensure enough raw material for the peeling capacity but where to go?

10 EXAMPLE OF ICELANDIC COMPANY ÍSLENSKA ÚTFLUTNINGSMIÐSTÖÐIN (IEC) / REYKTAL AS (2) The entry decision involved analyzing three main factors; 1. The possibilities of obtaining fishing rights. 2. The cost of labor. 3. Transaction costs / cost of doing business. The investment was made in Estonia by founding Reyktal AS in The Internalization was a forced one and the DFI made due to a need perhaps a way to survive! Today Reyktal AS is the main operation of the group.

11 THE CHOICE OF ENTRY MODE IN SEQUENTIAL FOREIGN DIRECT INVESTMENT By Sea-Jin Chang and Philip M. Rosenzweig Summary by Halla Björk Jósefsdóttir

12 INTRODUCTION The article was published in Strategic Management Journal in 2001 The subject is to examine the sequence of entry mode choices by multinational firms with multiple lines of business The main purpose is to have better understanding of foreign market entry mode

13 BACKGROUND Entry mode with Foreign Direct Investment (FDI) Greenfield investment Acquisition Joint venture Earlier researches have not examined: How each entry may be part of a sequence The relationship among lines of business within the same firm

14 THE RESEARCH Authors used four pairs of hypotheses to test if the mode of entry changes according to sequence The sample was 816 firms that entered the United States from Multinomial logit modes was used to test the hypotheses

15 MAIN RESULTS The association between competitive advantage over local firms and Greenfield investment is stronger for early entries than for subsequent entries Foreign market entries in a new line of business is positively associated with acquisition rather than Greenfield investment Cultural distance between the home market and host market is positively associated with Greenfield investment rather than acquisition or joint venture

16 MAIN RESULTS CONTINUED The association between cultural distance and Greenfield investment is weaker for subsequent entries than for early entries Prior international experience is positively associated with Greenfield investment Association between prior international experience and Greenfield investment will be stronger for earlier entries than subsequent entries Subsequent entries in the same line of business tend to use the same mode as used previously

17 CONCLUSION Some factors have a persistent importance in shaping the entry mode Transactional cost and cultural factors influence initial entries in host countries but as the firm gains experience about entry modes this experience will affects later entries Focus on internal factor like experience and learning and less on external factors Limitations of this research The data do not include measures of performance Only examined one host country and did not include firm s prior experience in other countries

18 EXAMPLE OF AN ICELANDIC FIRM Promens is leading global plastic manufacturer Operating 52 manufacturing facilities Europe, North America, Asia and Africa Promens has FDI both by Greenfield investment and acquisition, and have different line of business They used the same entry mode in the same line of business with an acquisition of two similar companies that both operated in North America

19 THE PRODUCT CYCLE HYPOTHESIS IN A NEW INTERNATIONAL ENVIRONMENT Summary by Gunnhildur Ásta Traustadóttir

20 THE PRODUCT CYCLE HYPOTHESIS Developed by Raymond Vernon in 1966 Explains the pattern of international trade The Product Cycle A company in a developed country launches a new, technologically advanced product in its home market The new product is first exported to similar countries, i.e. countries with similar needs, preferences, and incomes Later on, production gradually moves away from the point of origin.

21 THE PRODUCT CYCLE HYPOTHESIS IN A NEW INTERNATIONAL ENVIRONMENT The power of the Product Cycle Theory has been changing due to two reasons. Leading MNCs have developed global networks of subsidiaries The US market is no longer unique among national markets either in size or factor cost configuration

22 THE NETWORK S SPREAD

23 SPREAD OF PRODUCTION

24 THE GLOBAL NETWORK IN OPERATION The Global Scanner An MNC with an innovating capability that has developed a powerful capacity for global scanning The Standardized Products Firm This type of firms develops and produces a line of standardized products which they think responds to a homogenous world demand rather than to the distinctive needs of individual markets The Home Market Firm A firm s choices of innovations and production sites remain myopically oriented to the home market, while all analysis of foreign markets is left to its individual foreign producing subsidiaries

25 CONCLUSION The product cycle concept continues to explain and predict a certain category of foreign direct investments. Although it no longer can be relied on to provide as powerful an explanation of the behaviour of US firms as in decades before The hypothesis may still apply to; Smaller firms European and Japanese firms Firms in less-developed countries

26 WHY BUTTERFLIES DON T LEAVE BY ERIK STAM Ólafur F Sigurgeirsson

27 WHY BUTTERFLIES DON T LEAVE Entrepreneurial firms important for growth. Highly likely to start in home region of its founder. Major important job creators. Major question is do they stay in their home region or do they move their location?

28 THE PURPOSE OF THE ARTICLE Is to improve our understanding of the locational behavior of entrepreneurial firms. Most studies have failed to take into account the changing nature of the entrepreneurial firm. The article distinguishes five development phases.

29 LIFE COURSE OF A COMPANY The start-up phase: business opportunity recognized. The initial survival phase: Company becomes profitable. The early growth phase: Company can grow it s market share and look at new markets.

30 LIFE COURSE OF A COMPANY The growth syndrome phase: a relapse in the growth of the company. The accumulation phase: Here the company really takes off. A study of these phases provides insight into the changing nature of firms.

31 DEVELOPMENT OF SPATIAL ORGANIZATION How the company moves physical resources like labor, machinery and other resources. Is outcome of a location decision making process. Three strands of literature explains this. Neo classical economics literature. Resource dependence literature. Organizational capabilities literature.

32 HOW DOES IT WORK IN THE LIVE OF A COMPANY? In the start-up and initial survival phases companies focus on their home market. In the early growth phase companies expand their geographic market area. In the accumulation phase production is decentralized outside the home region. Relocation is determined by internal factors.

33 RESEARCH DESIGN AND DATA COLLECTION Three-stage nested design. In the first two stages the population was determined. In the final stage the research cases where selected. Firms were selected from the database of the Dutch Chambers of Commerce.

34 DATA COLLECTION AND FINDINGS Research population of 174 firms. Data collected via telephone survey. 55% had moved after they started but only 4% outside their home region. 67% of jobs where created by firms that stayed within their region of origin (95% of the population). 12% of jobs created by firms that were locationally flexible firms.

35 CONCLUSION Spatial organization of entrepreneurial firms coevolves with the accumulation of resources. Firms do not decide to branch out in the early stages of it s live. As a rule companies to not leave their home region but in some exceptional cases they do move beyond their old environment.

36 AN EXAMPLE OF AN ICELANDIC FIRM Actavis is an example of an Icelandic firm employees and only 500 in Iceland. Operation in 40 countries on 5 continents. The company we are working with Practical is in the early growth phase. Looking at opportunities to expand their business outside Iceland.

37 Strategies for Global R&D: a study of 31 companies reveals different models and approaches to the conduct of low-cost R&D around the world. Khurana, Anil Summary :Jóhann Davíð Snorrason Jóhann Davíð Snorrason

38 THE ARTICLE Published in Research-Technology Management, March 2006 A study of the utilization of R&D abroad Focused on 31 company

39 THE BENFITS OF R&D IN EMERGING MARKETS Emerging markets, such as Brazil, Russia, India and China=BRICS Fast growth in purchasing power Highly educated workers Lower salary demands Improved legal framework Foreign R&D = insight and development of products suitable for the foreign market

40 GE ON THE GO General Electric is a good example. Have invested heavily in offshore R&D Large innovation center in Bangalore, India Employs 3,000 researchers First come, first served...

41 DEVELOPMENT OF R&D ABROAD Focused on 31 company Majority or 88% stay at home Most who start up R&D abroad focus on low cost. Collaboration and outsourceing Learn by doing Managers state that the main reason is the risk involved

42 FACTORS DRIVING INTERNATIONAL R&D AND ITS SUCCESS Location, location, location! BRICS? The ability to absorb Transfer of knowledge Distinguish predictable processes

43 ICELANDIC COMPANIES? CCP has opened up branches in China and the US. Marel has factories and service centers abroad. Belgingur the company we are working with is only based in Iceland

44 THANK YOU