Welcome to class of
Evolving Multinationals
by
Dr. Satyendra Singh
www.uwinnipeg.ca/~ssingh5
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
Dimensions of Evolution
• Geographic Expansion
– Geographic proximity
– Cultural similarity
– Similarity in economic development
• Line of Business Diversification
– Liability of foreignness
• Functional Migration
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
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…
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
Competitive advantage versus local firms
LOB 1
LOB 2
LOB 3
LOB 4
Time
Liability of foreignness
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
Functional Migration
• Development of activities performed by lines of business
within a country
 worldwide
• Greenfield (demand > supply)
Strategic
• Acquire for vertical integration
Leadership
• Acquisition accelerates
Business Planning
functional migration
Local Design and Procurement
Assembly
Marketing and Distribution  only is not enough
 Good for local knowledge
Time
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
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