MNES IN THE GLOBAL ECONOMY TOPIC 2B: MNE ENTRY AND EXPANSION STRATEGIES

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1 MNES IN THE GLOBAL ECONOMY TOPIC 2B: MNE ENTRY AND EXPANSION STRATEGIES

2 OBJECTIVES To highlight essence of MNE internationalization strategy To identify phases of internationalization process, including emergence of metanational firms and dragon multinationals To highlight born global phenomenon

3 ESSENCE OF MNE INTERNATIONALIZATION STRATEGY Revolves around value-added/value-chain Decomposes production sequence into various phases of economic activity involving evolution of a specific product from start to finish Inputs converted into intermediate outputs which undergo further conversion until product or service is sold to final consumer Inputs may be used jointly rather than sequentially

4 MODEL OF VALUE-CHAIN

5 PHASES OF MNE INTERNATIONALIZATION PROCESS Exports (directly or through a local sales agent) and foreign sourcing (of intermediate or final products) Non-equity contractual agreements where trading across space is impeded (licensing, franchising, turnkey projects) Investment in marketing and distribution (particularly for natural resource- and market-seeking FDI; common for firms that gain experience and become familiar with host market; very common for firms with large buying or selling stake in host market; costs, including of the switching and fear of loss of customers/ takedown costs possible deterrent )

6 PHASES OF MNE INTERNATIONALIZATION, CON T [Qualification: marketing and distribution in host country may be undertaken through specialist firms in home country] Foreign production of intermediate goods and services (more substantial commitment of resources and capabilities; often begins in comparatively low value-adding activities at the initial processing or final assembly stage; speed of entry and amount of FDI hinge on scale and capital intensity of operations)

7 PHASES OF MNE INTERNATIONALIZATION, CON T Widening of value-added network (undertaking all tasks related to producing a final good and engaging in the marketing and distribution of that product, whether in the host market or for export; product mandate may be gained by using local technology and creative inputs; own sourcing relied upon; own cooperative and contractual relationships developed in the host market; focus on affiliate s own capabilities and upstream higher value-added activities; substantial and wide-ranging investment required, except for innovation/r&d which continues to be driven by home market)

8 PHASES OF MNE INTERNATIONALIZATION, CON T Integrated network multinational (parent and foreign affiliate produce a range of not fully overlapping products sold in global or regional markets and intensively traded within the MNE; foreign affiliate engages in innovative activities/r&d; strategic asset-seeking commonly resorted to through joint ventures and M&As; foreign affiliate may not merely gain product mandate but evolve into a center of excellence with responsibility of advancing excellence in one or more areas of competence within the firm)

9 PHASES ON MNE INTERNATIONALIZATION, CON T Strategic asset-seeking by an integrated network multinational may assume two forms First, efficiency- and strategic asset-seeking may combine in an effort to acquire control of an intact package of knowledge, capabilities, and productive assets that the target firm has to offer Second, strategic asset-seeking may be specifically oriented toward sourcing abroad knowledge that possesses distinct geographic origins

10 PHASES OF MNE INTERNATIONALIZATION, CON T An example of the latter is the metanational firm ( born in the wrong place and needs break free of geography ) which focuses on identifying and accessing new technologies, turning them into new products, and finally scaling up the innovations globally A dragon multinational is a variant of this pattern using its connections for leverage

11 BORN GLOBAL PHENOMENON Relatively speaking, internationalization of such firms does not entail multistage progression Typically technology-intensive start-up firms serving niche markets having flexible structure and capable of reaching suppliers and customers around the world from their very inception However, pure born global firms are a rare phenomenon and an element of multistage progression is present, although in a more compressed and modest form

12 BOEING S QUASI-METANATIONAL POSITIONING

13 ENVIRONMENTAL TRENDS SUGGESTING BUSINESS OR PRODUCT OPPORTUNITY GAPS

14 EXAMPLES OF HOW CHANGES IN ENVIRONMENTAL TRENDS PROVIDE OPENINGS FOR NEW BUSINESS AND PRODUCT OPPORTUNITIES

15 BUSINESSES CREATED TO SOLVE A PROBLEM

16 BUSINESSES CREATED TO FILL A GAP IN THE MARKETPLACE