Karol I. Pelc
NOTE: Some lecture materials are based on or adapted from the C. A. Bartlett
and P. W. Beamish textbook “Transnational Management” McGraw-Hill 2011,
and use some slides for that book. Those lectures are marked with a dual
copyright note.
Copyright © 2015 Karol Pelc; Copyright © 2011 McGraw-Hill Irwin
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Lecture 1
The process of globalization
Copyright © 2015 Karol Pelc; Copyright © 2011 McGraw-Hill Irwin
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Initial questions:
1. What are potential advantages of business
globalization ?
2. What are potential risks and negative effects
of business globalization?
3. Can globalization be avoided? Why or why
not?
Copyright © 2015 Karol Pelc; Copyright © 2011 McGraw-Hill Irwin
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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
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• 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
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• 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
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• Largest MNEs are as large as (and perhaps
more influential than) mid-sized countries
• Exxon Mobil value-added 2006: $112 billion
• Hungary value-added 2006: $113 billion
• Some industries completely dominated by
MNEs, including automobiles, computers
and soft drinks
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• Traditional motivations
• Market seeking: Fill capacity, develop scale
• Resource seeking: Secure supplies, exploit
factor cost differences
• Emerging motivations
• Competitive positioning (or “global chess”):
Need global operations to pre-empt others,
secure profit sanctuaries
• Global scanning: Access emerging trends, new
technologies and best skills worldwide
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Pre-1970
Market and Resource Seeking
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Secure raw materials
Exploit factor cost differences
Protect exports
Provide growth
70s/80s
Competitive Positioning
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•
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Match competitors
Capture global scale
Preempt markets
Play “Global Chess”
90s/00s
Global Scanning/ Learning
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•
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Global intelligence scan
Access scarce knowledge
Recruit skills, expertise
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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 global 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 Theory: FDI driven by many shifting
forces
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• 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
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• Classic internationalization process:
• Incremental process of increasing commitment
and understanding of foreign market (Uppsala
Model)
• Today many companies short-cut this
process
• In an Internet Age, many are even “Born Global”
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• Export
• Indirect
• Direct (e.g. agent)
• Controlled (e.g. sales branch)
• Investment
• Contractual
•
•
•
•
License
Franchise
Management/Service Contracts
Cooperation Agreements
•
•
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Greenfield
Acquisition
Joint Venture
Capital
Participation
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Control over foreign activities
High
Wholly-owned
subsidiary
Franchising
Joint venture
(local partner)
Licensing
Export (agent
or distributor)
Low
Indirect
Export
Low
High
Amount of resources committed to foreign market
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•
Multinational Perspective: Overseas markets a portfolio
of local opportunities; managed as a decentralized
federation
•
International Perspective: Leverages its domestic
capabilities worldwide; managed as a coordinated
federation
•
Global Perspective: Views world as a single unit of
analysis; operations managed centrally
•
Transnational Perspective: Simultaneously responds to
local needs, global demands, and cross-border learning
opportunities; managed as an integrated network
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High
Global Integration
Global
Transnational
International
Multinational
Low
Low
National Responsiveness
High
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Forces for cross-border integration and
coordination
•
Forces for national differentiation and
responsiveness
•
Forces for worldwide innovation and learning
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Economies of Scale
•
Economies of Scope
•
Factor Costs
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Increasingly Liberalized Environment for
Trade
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Expanding Spiral of Globalization
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• Cultural differences
• Consumer tastes and preferences
• Ways of doing business
• National infrastructure
• Technical standards (e.g., voltage, TV broadcast, etc.)
• Distribution channels (e.g., supermarkets vs. bazaars)
• Government demands
• National laws and regulations
• Host country pressures and demands
• Local competitors
• Appeal to nationalism
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MNC
• Motivators
• Strategic viability: global
competitiveness
• Operational viability:
profit
• Objectives
• Freedom to integrate
operations globally
• Ability to market and
ability to transfer
resources freely across
borders
• Measures
(primarily financial)
• Profit
• ROI
• Market share
Host Government
• Motivators
• National independence:
social, economic, political
• International competitiveness
• Objectives
• Protect national sovereignty
from external influence
• Capture global benefits of
export markets, efficient
industrial base, leading edge
technology
• Measures
(social/economic/political)
• Social cost/benefit
• Political return
• Industrial policy “fit”
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• Increased need for rapid and coordinated
worldwide innovation driven by:
• Shortening product life-cycles
• Increased cost of R&D
• Emergence of global technology standards
• Competitors’ ability to develop and diffuse
innovation globally
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• Strength of forces vary by industry; three
typical models
• Global industries (consumer electronics)
• Multinational industries (branded packaged
goods)
• International industries (telecom)
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Consumer
Electronics
Telecom
Switching
Global
Integration
Branded
Packaged
Products
Cement
National
Responsiveness
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SUMMARY
1. Multinational Enterprise (MNE) and multinational
management; Influence on global economy
2. Internationalization of business: motives, means
and process
3. Foreign Direct Investment (FDI): theories
4. Evolving perspectives on internationalization
5. Global and national forces in globalization process
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