Slide 2.

The Multinational Enterprise (MNE)

International Business– Spring 2020 Lecture 4
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.2

The Multinational enterprise (MNE)

• Objectives
• The nature of multinational enterprises
• Strategic management and multinational enterprises
• A framework for global strategies: the FSA/CSA
matrix.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.3

Objectives
• Describe the characteristics of MNEs.
• Explain the internationalization process.
• Explain why firms become MNEs.
• Discuss the strategic philosophy of these firms.
• Introduce a country/firm framework for examining a
firm’s competitiveness.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.4

The Multinational Enterprise (MNE)

• A company headquartered in one country but with

operations in one or more other countries.
• MNEs often downplay the fact that they are foreign-
held.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.5

The Nature of MNEs

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.6

Table 2.1 The world’s largest 500 multinational enterprises, 2007

Source: Authors’ calculations and adapted from Fortune, The Global 500, July 23, 2007

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.7

Characteristics of MNES
• Affiliates must be responsive to a number of
important environmental forces, including
competitors, customers, suppliers, financial
institutions, and government.
• Draw on a common pool of resources, including
assets, patents, trademarks, information, and human
resources.
• Affiliates and business partners are linked together
by a common strategic vision.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.8

Figure 2.1 The multinational enterprise and its environment

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.9

The Internationalization Process

• Internationalization: The process by which a
company enters a foreign market.
• Not all international business is done by MNEs.
Indeed, setting up a wholly-owned subsidiary is
usually the last stage of doing business abroad.
• Why do businesses wait to set up wholly-owned
subsidiaries?
• Foreign markets are risky.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.10

A Typical Internationalization Process

(major types of foreign entries for a firm)
• Initially, the firm might license patents, trademarks or technology to a
foreign company in exchange for a fee or royalty.
• The firm sees a potential for extra sales by exporting and uses a local
agent or distributor to enter a foreign market.
• The firm may use exporting as a “vent” for its surplus production and
might have no long-term commitment to the international market.
• As exports become more important, the MNE will set up an office for
its sales representative or a sales subsidiary.
• The firm might set up local packaging and/or assembly operations.
• Finally, the firm will set up a wholly-owned subsidiary (FDI).

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.11

Figure 2.2 Entry into foreign markets: the internationalization process

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.12

Why do firms become MNEs?

1. to diversify themselves against the risks and uncertainties
of the domestic business cycle;
2. to tap the growing world market for goods and services;
3. in response to foreign competition;
4. to reduce costs;
5. to overcome barriers to entry into foreign markets;
6. to take advantage of technological expertise by
manufacturing goods directly.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.13

The Strategic Philosophy of MNEs

• MNEs make decisions based on what is best for the
overall company, even if this means transferring jobs
to other countries and cutting back the local
workforce.
• MNEs have strategic effect on economies of other
countries.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.14

Table 2.2 The international expansion of four MNEs

Source: United Nations, World Investment Report 2001 (Geneva: United Nations Conference on Trade and Development, 2001)

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.15

Strategic Management and MNEs

• The strategic management process involves four major

functions: strategy formulation, strategy implementation,
evaluation, and the control of operations.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.16

Figure 2.3 The strategic management process in action

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.17

Basic Mission
• The following questions must be answered to determine the
firm’s basic mission:
• What is the firm’s business?
• What is the reason for its existence?
For example,
• Royal Dutch/Shell; BP Amoco and Texaco are in the energy
business, not the oil business.
• AT&T, Sprint and MCI are in the communications business, not
the telephone business.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.18

Analysis of the External and Internal Environment

• The goal of external environmental analysis is to

identify opportunities and threats that will need to be
addressed.
• The purpose of an internal environmental analysis is
to evaluate the company’s financial and personnel
strengths and weaknesses.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.19

Formulation of Objectives and Overall

Plan

• Internal and external analyses will help identify long-

term (2–5 years) and short-term (< 2 years) goals.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.20

The Implementation Process

• Once goals have been established, the plan is then

broken into major parts and each affiliate and
department is assigned goals and responsibilities.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.21

Evaluation and Control of Operations

• Progress is periodically evaluated and changes are

made in the plan to accommodate changing
circumstances and new information.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.22

Framework for Global Strategies:

the FSA/CSA matrix

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.23

Building Blocks in
our International Business
• There are two basic building blocks in an international business
course.
• Firm-specific advantages (FSAs): a unique capability proprietary
to the organization
 It may be built upon product or process technology, marketing or distributional
skills.
• Country-specific advantages (CSAs): country factors
 Natural resource endowments (minerals, energy and forests), the labour force
and associated cultural factors, etc.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.24

Figure 2.4 The basic components of international business

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.25

Figure 2.5 The FSA-CSA matrix

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.26

The Competitive Advantage Matrix

• Quadrant 1: resource-based and/or mature, globally-oriented
firms producing a commodity-type product  cost leadership
(Improving FSA can make them move to quadrant 3.)
• Quadrant 2: inefficient, floundering firms  no alternative but
to exit or to restructure
• Quadrant 3: follow any of the generic strategies  both cost
leadership & differentiation
• Quadrant 4: differentiated firms with strong FSAs in marketing
and customization  differentiation (the CSA is not relevant)

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.27

Dunning’s “eclectic” theory of MNEs: OLI

framework
• Ownership factors (O): FSAs
• Location factors (L): CSAs
• Internalization factors (I): FSAs
• O and I, in practice, are integrated features of FSA
management within the MNE that cannot be
decoupled in strategic decision making.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.28

It’s Regional, not Flat

• The world is flat by Thomas Friedman, the New York
Times journalist.
• Today, a large proportion of international business
takes place through offshoring leading to globalization.

• The world is not flat!

• There remain strong barriers as a business attempts to
cross the boundaries of triad regions.
• The liability of inter-regional foreignness.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 2.29

Thank You

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009