MGRECON401
Economics of International Business
and Multinationals
LECTURE 11
Course Summary
14-2
Why Study Multinationals?
Multinationals exist to create value. How?
How should a multinational be managed?
14-3
How Do Multinationals
Create Value?
Minimize cost of serving global market.
Offering new products and services around the
world.
Multinationals serve as global intermediaries.
14-4
How Do Multinationals
Minimize Cost?
Globalize markets and production
Standardize product
Economies of scale
Unit labor cost
Plant fixed costs
Transportation costs
14-5
Multinationals,
R&D, and Product Variety
Multinationals perform a significant amount of
R&D
Often produce new, technologically complex
products, large fixed costs
High degree of product differentiation
14-6
Multinationals
as Global Intermediaries
Efficient use of resources sometimes
requires inputs from various countries.
Multinationals coordinate the efficient use
of resources: missing markets.
Internalization: Ownership and Control
14-7
Managing a Multinational
Global efficiency
Local responsiveness
Worldwide learning
14-8
Global Efficiency
Carefully identify core competence
Worldwide product orientation to coordinate
global production
14-9
Local Responsiveness
Recognize when it’s important
Tailor product to local preferences
Tailor production to local conditions
Worldwide area orientation with significant
autonomy to maximize flexibility
14-10
Worldwide Learning
Use all global resources to pursue common
goals: globally linked.
Know what everybody is doing and make
accessible to all: globally leveraged.
Elaborate mechanisms to facilitate worldwide
learning.
14-11
The Dynamic Global Environment
Tariffs, subsidies, quotas, dumping, local
content requirements
World Trade Organization
Regional Trade Agreements
Telecommunications, Financial Services,
Intellectual Property, MultiFibre Agreement
14-12
Cases
Nokia
Caterpillar Tractor
Toyota
Nike
Komatsu
BP
Rudi Gassner/BMG
Xerox and Fuji Xerox
GM
Jack Welch/GE