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Strategy, structure of the multinational enterprise
0. Introduction and case workshop
Interesting session for the case writing assignment, no studying material for the exam
Structure of the book
Part I: MNE Nature
1. Essence, Role and Types of MNC
2. MNC Models: Headquarter-Subsidiary Relations
3. Traditional Internationalization Theories
Part II: MNE Activities
4. The Global Factory
5. Market Entry, Growth, Exit
6. Innovation and International Technology Development
7. Managing the Global Value Chain
Part III: MNE Relations
8. MNE Government Relations
9. MNE Competitive Dynamics
10. International Strategic Alliances
Examination
- Individual, oral exam on 50%
o Closed book, open questions
o 3-4 questions across all course sessions and topics
o Know, understand, apply
o 5 minute preparation, 10 minute Q&A exam
- Case project 41%
o Presentation 15%
o Report 23%
o Peer evaluation 3%
- Intermediate tests 9%
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Table of Content
0. Introduction – case writing workshop p1
1. Essence, roles and types of MNE p3
2. Models of MNE International activity p10
3. Internationalization Theories p19
4. Market Entry, Growth and Exit p26
5. Managing the Global Value Chain and Innovation p34
6. MNE Competitive Dynamics p46
7. MNE Government Relations p53
8. International Strategic Alliances p60
9. Guest College Bertschi p66
10. Guest College: Cruise Industry p68
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1. Essence, roles and types of the MNE
Objectives of this session:
- Discuss the core features of a MNE that sets it apart from purely domestic firms
- Get to know variations of the classical MNE model
- Critically discuss the role of MNEs in contemporary societies
What is a multinational enterprise?
- “A multinational enterprise (MNE) is a business firm that sets strategy and manages operations
for the development and utilization of income-generating assets in more than one country in
the pursuit of profits over time.”
- Multinational enterprise (MNE) - a business firm that has productive activities in two or more
countries, managed from a home base.
Core characteristics of an MNE
• Home base – host country
o Home base: The place where the headquarters of the organization are located. Very
often the place where the organization had been founded.
o Host country: Any other country where the organization is active.
• Liability of foreignness
o Barriers to international operations. Some things are a lot easier to achieve for a local
organization than for an international organization. This has to do with cultural
differences, differences in knowledge, political issues (e.g. red tape),…
• Accountability.. as a foreigner it is not always a benefit.
• Different culture, you are new and don’t know a lot of things
-> disadvantages risks of being a foreigner.. and organisations have to
overcome this
o Can be compensated by the monopolistic advantage some firms have
• Geographical spread of own operations and inter-organizational relations
o HQ-subsidiary relations
o Supplier/customer/government relations
o Multimarket contact: active in different markets and different divisions with different
organisations. It changes competitive behaviour of the firms. Lower degree of rivalry
than in only one market.
Key feature of an MNE
• Diversity of pressures
o Internal pressures: e.g. The choice between a centralized control (all control in the HQ,
subsidiaries just have to follow) and local government (a lot of autonomy in the
subsidiaries)
o External pressures: e.g. Do you provide specific items for each country, adapt the
product range or do you offer the same products everywhere and have scale
economies local adaptation vs global scale
Single ‘normative’ types of MNEs
• Heterarchy
o Multicentral Mix of different centers
o Lateral communication
o Indirect and normative cooperation mechanisms
o Very flat organization
o Coalitions with other organizations
o Holographic orientation
o Brain metaphor Every pair of items (divisions) is related in at least two different
ways. All divisions are related with each other
• Diversified Multinational Corporations
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o Multidimensionality and Heterogeneity lead to 7 characteristics
• Structural indeterminacy
• Internal differentiation
• Integrative optimisation
• Informal intensity
• Latent linkages
• Networked organization / Fuzzy boundaries
Learning and continuity
• Horizontal organization
o Lateral decision processes
o Flat organizations
o Opposed to hierarchy
o Common ground for decision making (shared values and norms)
White and Poynter’s Horizontal Organisation in comparison
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Classical typologies of MNEs
MNE types based on criteria:
1) Top management attitudes and management philosophy: EPG Model
2) Strategic orientation as response to industry forces: International, local, global, transnational
The EP(R)G Typology
EP(R)G Model: Type Illustration
- The ethnocentric firm: focused on the HQ. Subsidiaries have to carry out without a lot of decision power
o E.g. Apple, Mcdo: they don’t change their products/menu’s in foreign countries
- The Polycentric firm: focused on subsidiaries. A lot of independence, no communication or
common objective
o Focus on the local markets, autonomous subsidiaries
o E.g. Philips
- The Geocentric firm: Focused on relations between subsidiaries and HQ. A lot of collaboration and
common objectives but with national interests too!
o Finding a balance between economies of scale (global) and local adaptation (responsiveness)
o E.g. Nestlé
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The EP(R)G Model: Geocentrism Forces
The Bartlett & Ghoshal Typology
• International organization: not really efficiency growth, but still the same products. So just do
the same things in more countries.
• E.g. Doctors without Borders
• Global organization: Expand to other countries to achieve scale economies.
Coca Cola, Apple
• Multinational organization: Expand to other countries and adapt the whole product portfolio
and working means to this country. This doesn’t provide scale economies
• E.g. P&G
• Transnational organizations: Adapt the product portfolio to the local market but still enjoy
efficiency gains and scale economies.
• Nestlé, they sell the product KitKat on a global scale with local adaptation to the
local preferences like Japan (Macha), China (green tea) and Italie (tiramisu) tastes.
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Why do MNC (Multinational Corporation) internationalize? MNC Internationalization and Firm
Advantages
Advantages of being global
- If we look at different industries and compare local to multinational. In a lot of
industries local firms are more profitable than multinational firms. For media and
communications there is a very big advantage compared to multinationals.
- Tax advantages Location bound
- Home country location
- Location bound – tied to the home market and non-location bound
o Firm specific but bound to the location: weather (snow)
o Firm specific advantages that we can transfer: management competencies
that we can transfer, branding and reputation is a firm specific advantage if
its good -> can be stronger in a specific country, sometimes a brand in not
even known in another country.
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MNC’s Strategy based on FSA (= Firm Specific Advantages) and CSA (=Country Specific Advantages)
The role of the MNE
Positive Negative (critics)
Job creation Threat to national sovereignty
Higher wages Link with colonialism
Easy interchange of personnel Tax avoidance (cf. Apple – Ireland)
Know-how and expertise transfer
Facilitation on learning
Mitigating IP-concerns
Driver for economic development
Born globals
Definition: “Business organizations that, from or near their founding, seek superior
international business performance from the application of knowledge-based resources to
the sale of outputs in multiple countries”
➔ Immediately focus on international expansion
➔ E.g. Spotify, Skype
How to recognize born globals?
• Time from founding till market entry often 3 years or less
• First emerged in countries with small domestic markets
• Now worldwide; universally dispersed
• Driven by globalisation & technological advancements
• Lacking tangible resources older firms tend to rely on, born globals leverage a
collection of intangible knowledge-based capabilities
• Importance of innovative culture
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Emerging markets MNEs
Emerging MNE’s typical expansion path
➔ First improve your local market position in the home country before going
international
➔ E.g. Huawei, Xiaomi, Alibaba
• Host country = developed country: By expanding a little bit, the upgrade of capabilities is big
• Host country = developing country: Expanding quite a lot to have a good upgrade of
capabilities.
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2. Models of MNE International activity
Objectives of this session:
- Understand MNEs as organizations spanning home and host countries that are
conceptualized as core-periphery arrangements
- Get to know different models of HQ-subsidiary relations of MNE
- Discuss the strengths and weaknesses of alternative HQ-subsidiary models for
understanding MNE activity and performance
Reminder: The MNE
“The MNE must simultaneously adapt to and operate within multiple societies and, hence, multiple
environments… Their central management is confronted with the challenge of designing systems that
retain sufficient unity and coherence to operate as a common enterprise and, at the same time, to
allow sufficient latitude and flexibility to adapt to greatly varying circumstances.”
MNE International Activity: HQ-Subsidiary relations
1) How does the way an MNE is structured affect the implementation of its strategy?
2) Which different relationships are there between the headquarter and subsidiaries within an MNE?
Evolution of thinking
2.1 Focus on Organizational Structure as a Response to Internal Forces
- Early work on MNE models: the 70s
- Studies that identified internal forces as the primary drivers of structural change
- 3 distinct approaches:
o Evolution of MNE organizational structure
o MNE activities evolution in terms of mode and location
o Evolution of managerial mindsets (see EPG session)
- There is little focus on the political aspects of MNE organization
