Welcome to class of Evolving Multinationals by Dr. Satyendra Singh uwinnipeg/~ssingh5

1. Welcome to class ofEvolving MultinationalsbyDr. Satyendra Singhwww.uwinnipeg.ca/~ssingh5

2. Objective • Identical Role of Subsidiaries • Traditional • Affiliate CEO ≈ Parent CEO • Affiliates do what parents do • Internally Differentiated Form • Different capabilities from different affiliate • Optimize its worldwide operation • Gain efficiency – Global structure • Achieve network flexibility • Develop capability  Evolve

3. Dimensions of Evolution • Geographic Expansion • Geographic proximity • Cultural similarity • Similarity in economic development • Line of Business Diversification • Liability of foreignness • Functional Migration

4. Geographic Expansion • Geographic Proximity • 1st enter neighboring country/countries • Sequential move to farther places • Cultural Similarity • 1st in a country with similar culture (eg language) • ↑ effective communications • ↑ understanding of local customs and markets • Similarity in Economic Development • 1stcountry similar to home country/PPP • Similar buying habits as home market consumers • Product adaptation is modest • Learn 1st, develop capability, then go diff. country

5. Example – Geographic Expansion • HO: USA (Colgate-Pamolive) • Geographic expansion • 1st Canada 2nd Mexico … • Culturally similar Anglo-Saxon • 1st Australia, NZ, UK… • Modest adaptation – language • Learn  more culturally different market • Latin America (different language, trade barrier) • Relative importance of the factors • Internet, economic development…

6. Competitive advantage versus local firms LOB 1 LOB 2 LOB 3 LOB 4 Time Liability of foreignness Line of Business Diversification • 1st add strongest single LOB  profitable • Profit can offset unfamiliarity of local market • Then add 2nd LOB with less comp adv • Learn how to compete in local environment • Then add with no comp adv • Learn from IJV/acquisition from superior partner

7. Example – Line of Business • HO: Japan (SONY) • Enter US with TV • Enjoy competitive position over US • Good profit  justifies greenfield operation • Then AUDIO, then Magnetic Tape • Took advantage of favorable exchange rate • New LOB, if benefits offset disadvantage in mkt • Then, wished to develop capability in Data Storage System • Began to make acquisitions

8. Strategic Leadership Business Planning Local Design and Procurement Assembly Marketing and Distribution  only is not enough  Good for local knowledge Time Functional Migration • Development of activities performed by lines of business within a country • Greenfield (demand > supply) • Acquire for vertical integration • Acquisition accelerates • functional migration  worldwide

9. Example – Functional Migration • HO: Japan (SONY), Enters US with TV • But all manufacturing was in Japan  SONY wanted • SONY got accused of dumping • SONY made FDI in US  assembly only • Product and Process knowledge transferred from Japanese exec to US exec • SONY generated resources in US • Began full manufacturing • Plant was monitored initially by Japanese • SONY is not replicating functions abroad, but shifting abroad  highest being strategic leadership worldwide

10. MNC Evolution – Integrated Process • Accelerated Evolution • MNC evolves along all the dimensions at the same time • Punctuated Evolution • Discontinuous skips steps  no duplication • Share functions • b/w existing LOB Finance, legal… • Across countries within a single LOB  R&D, Mrf Common in trading blocks  EU, NAFTA… • Skip functions where more efficiently performed • Efficient evolution  Economies of scale and scope • Reverse Evolution • Restructuring of operations • Consolidation of lines of business and shutting down subsidiaries  examine multidomestic structure