1. MNC Strategies Entry and expansion decision Intra-company relations Inter-company relations Dunning chapter 7-9, Caves chapter 3

2. Game plan Today: concepts n How does a firm expand abroad? n Choice of entry mode n Organization of company activities Tomorrow: empirical studies n Joint ventures or 100% foreign n Greenfields vs acquisitions n R&D and intra-firm trade

3. Organization of a company’s international activities n Value chains essential –Ability to separate different stages of production essential for the emergence of MNCs (D, fig 7.1, 7.3) n Several possible outcomes –exporting or licensing –sales and marketing subsidiaries –production subsidiaries –service contracts

4. Initial entry decisions n Characteristics of assets and location specific factors important determinants of entry mode –more advanced and valuable assets likely to be exploited through FDI –home country market structure important –host country characteristics essential (D, Exhibit 7.1)

5. Development over time n Most MNCs start with exports and sales subsidiaries n Subsequent development into assembly and manufacturing. Why? n Few MNCs have so far become truly global or multidomestic. Many strategic functions traditionally located at headquarters / home country (D, fig 7.5)

6. Determinants of the type and degree of internationalization n Experience n Economics of scale n Flexibility of production process n Trade policy n Competition n Transport costs n Transaction costs

7. Organization of MNC operations n Choice of organizational structure: see your favorite Multinational Management course n Economically important choice: degree of centralization / decentralization. Why? (D, Exhibit 8.1-8.3)

8. Degree of centralization n Varies with function. More in finance and international marketing than local marketing and employment n Determinants: –Age –Size –Nationality –Product characteristics

9. Inter-firm relations: joint ventures and alliances n Spectrum of possible cooperation modes with differences in equity stakes, time perspective, scope, and resource content (D, Table 9.2) n Driven by cost considerations, competition, and regulations: sharing risk or large fixed costs when competition is tough or when rules mandate alliances (D, Exhibit 9.3)

10. Joint ventures n Increasingly common during past decades, perhaps because of rapid technology development n Changing characteristics since 1960s and 1970s (D, Exhibit 9.1) n Remaining problem areas: transactions costs and need to agree plus competition policy

11. Strategic alliances n Increase driven largely by high rate of innovations in new industries, cross- licensing and technology sharing common (D, Table 9.4) n Many instances where governments participate or encourage alliances for strategic reasons

12. Summary: choice of contractual arrangement n Nature of competitive assets plus characteristics of firms, industries and countries determine the most effective contractual form for foreign activities n Complex technologies promote wholly- owned affiliates, complex environments promote risk and cost sharing. (D, Table 9.1)