MULTINATIONAL COMPANIES (TIẾNG ANH KINH tế SLIDE)

3.Multinational strategy• A strategy of adapting products and their marketing strategies in each national market to suit local preferences.. • Multinational strategy allows companies

UNIT 8

MULTINATIONAL COMPANIES

1 What is a multinational company?

The term ‘multinational’ is used for a company which has subsidiaries or sales facilities throughout the world.

Another expression for this type of business enterprise is ‘global

corporation’

Example: Coca Cola, Heinz, Sony,

Hitachi, Akzo, General Motors…

2 What are their

characteristics?

They control vast sums of money

They operate in countries with widely differing political and economic

systems.

3.Multinational strategy

• A strategy of adapting products

and their marketing strategies in

each national market to suit local preferences.

• Multinational strategy allows

companies to closely monitor buyer preferences in each local market

and respond quickly and effectively

as new buyer preferences emerge.

• It does not allow companies to

exploit scale economies in product development, manufacturing, or

marketing.

4 Global strategy

• A strategy of offering the same

products using the same marketing strategy in all national markets.

• The main benefit of a global strategy

is its cost savings due to product

and marketing standardization.

• It allows managers to share lessons learned in one market with

managers at other locations.

• It may cause a company to overlook important differences in buyer

preferences from one market to

another.

5 What are their reasons for going international?

• Their national markets become saturated.

• Some countries set up trade

barriers – usually tariffs or

quotas – against a company’s

products.

• Cheap labour and natural

resources abroad, especially in developing countries.

• Expand sales

• Diversify sales

• Gain experience

6 Direct exporting

Direct exporting – A practice by which a company sells its products directly to

buyers in a target market.

Sales representatives represent only its own company’s products, not those of other companies.

Distributors take ownership of the

merchandise when it enters their

countries.

7 Indirect exporting

In direct exporting – A practice by which a

company sells its products to intermediaries who resell to buyers in a target market.

Agents: Individuals or organizations that

represent one or more indirect exporters in a target market.

Export Management Companies: Companies that export products on behalf of indirect

exporters.

Export Trading Companies: Companies that provide services to indirect exporters in

addition to those activities directly related

to clients’ exporting activities.

8 Licensing

Licensing – Practice by which one

company owning intangible property (the licensor) grants another firm (the

licensee) the right to use that property

for a specified period of time.

E.g

-Hitachi (Japan) licenses from Duales

System Deutschland (Germany)

technology to be used in the recycling of plastics in Japan.

-Hewlett-Packard (United States) licenses from Canon (Japan) a printer engine for use in its monochrome laser printers.

8 Licensing

Advantages of Licensing:

-Licensors can use licensing to finance their international expansion.

-Licensing can be a less risky method of

international expansion for a licensor

Licensing helps shield the licensor from the increased risk of operating its own local

production facilities in unstable or assess markets.

hard-to Licensing can help reduce the likelihood that

a licensor’s product will appear on the black market.

-Licensees can also benefit from licensing by using it as a method of upgrading existing production technologies.

8 Licensing

Disadvantages of licensing:

-Licensing can restrict a licensor’s future activities.

-Licensing might reduce the global

consistency of the quality and marketing

of a licensor’s product in different

national markets.

-Licensing might amount to a company

‘lending’ strategically important property

to its future competitors This is an

especially dangerous situation when a

company licenses assets on which its

competitive advantage is based

9 Franchising

Franchising – A practice by which one

company ( the franchiser) supplies another (the franchisee) with intangible property and other assistance over an extended period.

E.g.

-Jean-Louis David (France) awards franchises

to franchisees for more than 200 of its

hairdressing salons in Italy.

-Brooks Brothers (U.S) awards Dickson

Concepts (Hong Kong) a franchise to operate Brooks Brothers stores across Southeast

Asia.

9 Franchising

Advantages of Franchising:

-Franchisers can use franchising as a cost, low-risk mode of entry into new

low-markets It allows them to maintain

consistency by replicating the process for standardized products.

-It allows for rapid geographic expansion Firms often gain a competitive advantage

by being first in seizing a market

opportunities.

-Franchisers can profit from the cultural

knowledge and know-how of local

managers.

9 Franchising

Disadvantages of Franchising:

-Franchisers may find it cumbersome to manage a large numbers of franchisees

in a variety of national markets.

-Franchisees can experience a loss of

organizational flexibility in franchising agreements.

10 Management Contracts

Management Contract – A practice by which

one company supplies another with managerial expertise for a specific period of time.

E.g.

-DBS Asia (Thailand) awarded a management

contract to Favorlangh Communication (Taiwan)

to set up and run a company supplying digital programming in Taiwan.

-Lyonnaise de Eaux (France) and RWE Aqua

(Germany) have agreed to manage

drinking-water quality and client billing and to maintain the water infrastructure for the city of

Budapest, Hungary, for 25 years.

10 Management Contract

Advantages of Management Contract: -A firm can exploit an international

business opportunities without having

to place a great deal of its own

physical assets at risk.

-Governments can award companies

management contracts to operate and upgrade public utilities, particularly

when a nation is short of investment financing.

-Governments can use management

contracts to develop the skills of local workers and managers

10 Management Contract

Disadvantages of Management

Contract:

-Management Contracts require that

company managers relocate for given periods of time In nations undergoing political or social turmoil, lives can be placed in significant danger.

-Expertise suppliers may end up

nurturing a formidable new competitor

in the local market.

11 Turnkey projects

Turnkey (or build-operate-transfer)

project – A practice by which one

company designs, constructs and tests

a production facility for a client firm.

-Lubei Group (China) agreed with the

government of Belarus to join in the

construction of a facility for processing

a fertilizer by-product into cement.

11 Turnkey projects

Advantages of Turnkey Projects

-Turnkey projects permit firms to

specialize in their core competencies and to exploit opportunities that they could not undertake alone.

-Turnkey projects allow governments to obtain designs for infrastructure

projects from the world.

11 Turnkey projects

Disadvantages of Turnkey Projects:

-A company may be awarded a project for political reasons rather than for

technological know-how.

-They can create future competitors.

12 Wholly owned

subsidiaries

Wholly owned subsidiary – A facility entirely owned and controlled by a single parent companies.

12 Wholly owned

subsidiaries

Disadvantages of Wholly owned

subsidiarieys:

-They can be expensive undertakings.

-Risk exposure is high because a wholly owned subsidiary requires substantial company resources.

13 Joint ventures

Advantages of Joint Venture:

-Companies rely on joint ventures to

reduce risks.

-Companies can use joint venture to

penetrate international markets that are otherwise off-limit.

-Companies can gain access to another company’s distribution network.

-Companies form international joint

venture for defensive reasons,

avoiding the government interference

13 Joint ventures

Disadvantages of Joint Venture:

-Conflict is most common when

management is shared equally.

-Loss of control over a joint venture’s operations can also result when the local government is a partner.

14 Strategic Alliance

Strategic Alliance – Relationship whereby two or more entities

cooperate (but do not form a

separate company) to achieve the strategic goals of each.

E.g.

-An alliance between Siemens

(Germany) and Hewlett-Packard (United States) to create and

market devices used to control

telecommunication systems.

14 Strategic Alliance

Advantages of Strategic Alliance

-Companies share the cost of an

international investment projects.

-Companies use strategic alliances to

tap into competitors’ specific strength -Some companies can gain access to a partner’s channels of distribution in a target market Other companies can

reduce exposure to the same kind of

risks from which joint ventures provide protection

14 Strategic Alliance

Disadvantages of Strategic Alliance -They can create a future local or even global competitor.

-Conflict can arise and eventually

undermine cooperation

Marxist theories

Mainstream Economics

 Explanation of trade: Country will export those goods whose production uses intensively their abundant resource

 Mundell equivalency – “International transfer

of factors of production (capital and

technology) through FDI is equivalent to trade

in terms of the consequences – for prices and consumption etc.” (expounded by Bhagwati)

 Location determined by comparative

advantage and location theory – production

based where most efficient

 Role of imperfect competition prevented

development of formal economic theory

regarding multinational companies

 MNCs large and operate in imperfect markets

 Gilpin: MNC experiences are unique

corporate experiences – i.e., IMB invests and produces in many countries in order to

maintain good relations with governments

 Matters A LOT IF corporations invest or trade

◦ they undoubtedly try to extend power

over governments and other firms

 New advances in economic theory strategic trade theory and industrial organization –

have changed the views of neoclassical

economists somewhat

Firms Face Disadvantages Overseas

Have to meet local criteria

Figure out rules; regulations;

language

Sometimes significant cultural

obstacles

Labor practices, unions, etc.

Why not license?

Vernon's Product Cycle

Theory

product development – large domestic

market and superior technology and R&D

between countries, firms expand to take advantage of the gaps

for sophisticated market – saturates it

Nokia)

Product Cycle Theory

Third stage: technology

standardized, less costly – MNC

move to middle income country for production

Technology and nature of the

market matters

Caves: Appropriability Theory

Why invest abroad rather than license?

Intangible assets – patents or new technology, or even management superiority, are difficult to capture

in a contract

If a firm gives up these assets

through licensing, may risk basis of its comparative advantage – no

longer able to extract “rents” or

“pure profits”

Marxist Views – Stephen Hymer

death

1) law of increasing firm size – as firms grow and develop they expand across national borders and in doing so

they create a core – periphery

structure and an international

division of labor

Marxist Views (con’t)

size, mobility and monopolistic power means that firms control and exploit the world

construct a world composed of wealthy, core economies and the impoverished

south

underdevelopment of the south are

integral and complimentary

Regionalism Is Important

Most FDI is invested in the same

region: Europe (Germany in eastern

Europe), Japan in East Asia, US in

North American

Less risk and less dependence on

labor in manufacturing means perhaps cheaper to use trained, skilled, labor

Regional production: scale economies, lean management, cultural affinities, less uncertainty, and shipping costs!

Issues with MNCs

Relations with Developing CountriesLabor standards (wages, hours,

union representation, working

conditions and child labor)

Environmental practices: race to the bottom?

North-South not the dominant

pattern of investment

◦ Only 27% in “developing” countries

 Excluding oil exporting and least developed

Issues with MNCs Relations with Developed Countries (con’t)

Competition Policy – market power –

both at home and abroad

◦ Affecting the price and quantity of

inputs and outputs

Tax Avoidance

Who should regulate?

◦ Domestic governments?

◦ Multilateral institutions?

◦ Currently through a patchwork of

national, bilateral, regional and

multinational agreements – nothing

comprehensive at WTO/multilateral

level