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Multinational enterprises and the global economy

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					Multinational enterprises and
    the global economy
A perspective on regional and global
strategies of multinational enterprises
   A.Rugman and A.Verbeke, 2004
               Group 3
       Nature of globalization
• Globalization is a phenomenon of trade
  liberalization (the increased circulation of
  goods) and financial liberalization (the
  expanded circulation of capital) around the
  globe.
• Semi-globalization: region matters
    Dimensions of globalization
• Geographic (concept
  of Triad)
• Mode of entry
  (products, licensing,
  FDI)
• Process under
  globalization (factors
  of production, sales)
                   MNE
• Multinational enterprise produces and/or
  distributes products and/or services across
  national boundaries
• 500 largest MNE are responsible
  for 90% of FDI and 50% of international
  trade
         ARE THEY GLOBAL?
            Why globalize?
• To recover innovation costs of engineered
  commodities (innovative and differentiate
  products, resulting from high capital
  investment and knowledge development)
• To benefit from economy of scale
• To exploit national differences
                 Definitions
• Global (9): 20-50% sales in every region of Triad
• Bi-regional(25): 20-50% sales in two regions
• Home region oriented (320): more then 50% in the
  region of origin
• Host region oriented (11): more then 50% in the
  region other then region of origin
• No data (135)
              Global companies (9)
Company       Region    Revenue   North     Europe   Asia-
                        USD bn    America            Pacific
IBM           NA        85.9      43.5      28.0     20.0

Sony          AP        60.6      29.8      20.2     32.8

Philips       E         29.0      28.7      43.0     21.5

Nokia         E         27.9      25.0      49.0     26.0

Intel         NA        26.5      35.4      24.5     40.2

Cannon        AP        23.9      33.8      20.8     28.5

Coca-Cola     NA        20.1      28.4      22.4     24.9

Flextronics   AP        13.1      46.3      30.9     22.4

LVMH          E         11.0      26.0      36.0     32.0




    Data are for 2001
                       Bi-regional (25)
Company           Region   Revenue   North     Europe   Asia-
                           USD bn    America            Pacific
BP                E        174.2     48.1      36.3     NA

Toyota            AP       120.8     36.6      7.7      49.2

Nissan            AP       49.6      34.6      11.0     49.7

Unilever          E        46.1      26.6      38.7     15.4

Motorola          NA       30.0      44.0      14.0     26.0

GlaxoSmithKline   E        29.5      49.2      28.6     NA

EADS              E        27.6      33.7      44.9     10.2

Bayer             E        27.1      32.7      40.3     16.1

Ericsson          E        22.4      13.2      46.0     25.9

Alstom            E        20.7      28.0      45.1     16.1

Aventis           E        20.5      38.8      32.1     6.4

Diageo            E        18.6      49.9      30.2     7.7


     Data are for 2001
           Home-region based (320)
Company            Region   Revenue   North     Europe   Asia-
                            USD bn    America            Pacific
Wal-Mart           NA       219.8     94.1      4.8      0.4

General Motors     NA       177.3     81.1      14.6     NA

Ford               NA       162.4     66.7      21.9     NA

General Electric   NA       125.9     59.1      19.0     9.1

Mitsubishi         AP       105.8     5.4       1.7      86.8

Mitsui             AP       101.2     7.4       11.1     78.9

Total              E        94.3      8.4       55.6     NA

Itochu             AP       91.2      5.5       1.7      92.1

Allianz            E        85.9      17.6      78.0     4.4

Volkswagen         E        79.3      20.1      68.2     5.3

Siemens            E        77.4      30.0      52.0     13.0

Sumitomo           AP       77.1      4.8       NA       87.3

   Data are for 2001
             Host-region oriented (11)
Company            Region   Revenue   North     Europe   Asia-
                            USD bn    America            Pacific
Daimler Chrysler   E        136.9     60.1      29.9     NA

ING Group          E        83.0      51.4      35.1     3.4

Ahold              E        59.6      59.2      32.8     0.6

Honda              AP       58.9      53.9      8.1      26.9

Santander          E        30.4      55.7      44.3     NA

Le Lion            E        19.6      75.9      22.0     1.0

AstraZeneca        E        16.5      52.8      32.0     5.2

News Corp.         AP       13.8      75.0      16.0     9.0

Sodexho            E        10.6      50.0      42.0     NA

Manpower           NA       10.5      19.1      68.6     NA

Wolseley           E        10.4      66.3      28.7     NA



   Data are for 2001
 Firm specific advantages (FSA)
• Location-bound: benefit a company only in
  particular location
   – LB FSA are limited to home region
   – Growth of home region is a benefit and a threat
   – Learning process in host region is needed
• Non location-bound: easy transferable across
  borders as an intermediate product
   – Level of transferability determines success
• Balance in FSA can be achieved through regional
  headquarters
               Type comparison
Company           Type            Revenue

Honda Motor       Host-region     58.9
                  oriented

Mitsubishi        Home-oriented   105.8


Toyota Motor      Bi-regional     120.8
             Production chain
• Upstream activities: offshore sourcing, rational
  manufacturing
   – Easy to organize due to similarities in management
   – Mainly usage of incomplete integration of factor
     markets (international arbitrage)
• Downstream activities: distribution channels,
  branding
   – Regional organizing principals limit number of
     distribution strategies
• Asymmetry
              Example: Nike
• 99% of production in Asia
• 58.2% of sales in Americas
• 60.2% of employees in Americas
• BUT 660,000 independent contract employees
Strategy
Brand name is a dominant FSA (downstream)
also ability to link attractive host country production
   factors with upstream FSA
           Effect on structure
• Different market positions, regional environment
  require specific strategies
• Decentralization reflects involvement of regional
  units to corporate planning for successful
  downstream activities
• Centralization is appropriate for planning
  upstream activities given information availability
  and reduction both production and coordination
  costs
       Effect on performance
• Some benefits (taxes, cheap labor, common
  purchasing) are easy to realize
• Expansion to home region is easy to absorb
• Broader geographic scope strains absorbing
  capacity, especially in short run
• Broader expansion promises broader
  benefits, but difficult to manage
                Conclusions
• A few companies are truly global
• Necessity to balance NLB FSA and LB FSA for
  every activity in every region
• Easier to benefit from globalization in upstream
  activities then downstream one
• For successful operation regional headquarters are
  essential
• Performance increases in expansion of home
  region and decreases in broader expansion (short
  term)

				
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posted:9/22/2011
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