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Chapter 1: Expanding Abroad

Power Point Presentation Materials Transnational Management Text, Cases and Readings in Cross-Border Management 4th Edition Christopher A. Bartlett Sumantra Ghoshal Julian Birkinshaw Placeholder: McGraw-Hill Logo. Chapter 1: Expanding Abroad. Motivations, Means & Mentalities.

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Chapter 1: Expanding Abroad

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  1. Power Point Presentation MaterialsTransnational ManagementText, Cases and Readings in Cross-Border Management4th EditionChristopher A. BartlettSumantra GhoshalJulian BirkinshawPlaceholder: McGraw-Hill Logo

  2. Chapter 1: Expanding Abroad Motivations, Means & Mentalities

  3. What is a Multinational Corporation (MNC)? • Substantial direct investment in foreign countries (not just an export business) • Active management of these offshore assets (not simply holding them as a passive financial portfolio) • Management integration of operations located in different countries 1-2

  4. What’s Different about Multinational Management? • Multiple operating environments • Diverse pattern of consumer preferences, channels, legal frameworks, etc. • Political demands and risks • Need to mesh corporate strategy with host country policies 1-3

  5. What’s Different (Continued)? • Global competitive game • Multiple markets, new strategic options • Currency fluctuation and exchange risk • Economic performance measured in multiple currencies • Organizational complexity and diversity • Need to manage complex demands across barriers of distance, time, language and culture 1-4

  6. MNC Influence in the Global Economy • Largest MNCs are as large as (and perhaps more influential than) mid-sized countries • Exxon Mobil value-added 2000: $63 billion • Pakistan value-added 2000: $62 billion • Some industries completely dominated by MNCs • 85% of all automobiles, 70% of all computers manufactured and sold by MNCs 1-5

  7. Motivations: Pushes and Pulls to Internationalize • Traditional motivations • Market Seeking: Fill capacity, develop scale • Resource Seeking: Secure supplies, exploit factor cost differences • Emerging motivations • Global scanning: Tap into new trends, technologies and ideas around the world • Competitive positioning (or “global chess”): Need global operations to preempt others, secure profit sanctuaries, exchange hostages, etc. 1-6

  8. International Expansion Motivation Pre War • Resource Seeking • Secure raw materials • Exploit factor cost differences 50/60 • Market Seeking • Protect exports • Provide growth • Develop scale 70/80 • Competitive Positioning • Match competitors • Preempt markets • “Global chess” 90/00 • Global Scanning • Global intelligence • Access to scarce knowledge, expertise 1-7

  9. Evolving Theory of Foreign Direct Investment (FDI) • International Capital Theories: FDI driven by return equalization, portfolio diversification • Location Theories: FDI driven by countries’ comparative advantage • Product Cycle Theory: FDI driven by firms’ management of the product life cycle • Oligopolistic Behavior Theories: FDI driven by firms’ search for or defense of competitive advantage • Internalization Theory: FDI driven by organizations’ internal transaction efficiency (hierarchy vs. markets) • Eclectic Theories: FDI driven by many shifting forces 1-8

  10. Means of Internationalization: Prerequisites • Foreign countries must offer location-specific advantages • To motivate the company to invest there • Company must have strategic competencies or ownership-specific advantages • To counteract its relative unfamiliarity with foreign markets • Company must have organizational capabilities • To get better returns from leveraging strengths internally rather than through external market mechanisms such as contracts and licenses 1-9

  11. Means of Internationalization: Processes • Classic internationalization process: • Incremental process of increasing commitment and understanding of foreign market (the Uppsala model) • Today many companies short-cut this process • Some are even “Born Global” 1-10

  12. Entry Mode Alternatives • Export • Indirect • Direct (e.g. agent) • Controlled (e.g. sales branch) • Contractual • License • Franchise • Management or service contracts • Cooperation agreements • Investment • Greenfield • Acquisition • Joint Venture 1-11

  13. Process of Internationalization Wholly owned subsidiary Joint venture with a local partner Franchising Control over foreign activities Licensing Export through agent or distributor Indirect Export Amount of resources committed to foreign market 1-12

  14. Evolving Mentality: International to Transnational • International Perspective: Domestic company with foreign appendages, opportunistic approach to FDI • Multinational Perspective: Overseas markets important, and managed as a federation of companies • Global Perspective: World viewed as a single unit of analysis, all products sold in same way, operations managed centrally • Transnational Perspective: Need to respond to host country pressures and global competitive demand simultaneously, pulls together best of all mentalities 1-13

  15. Evolving Mentality High Global Transnational Global Integration International Multinational Low Low National Responsiveness High 1-14

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