ITIONAL MNE & THE GLOBAL FA

E TRAD TCORY
TH

Reported by: Hungry Birds

 AY'S AGEN
D

DA
TO
What is Traditional MNE Comparison of Traditional
& the Global Factory? MNE & the Global Factory
(every topic)
 TRADITIONAL MULTINATIONAL
ENTERPRISE
It is a dominant international business
Evolved from 1970's to the early 2000's

Changes in the International Business

1. Opening of new markets
2. Improved ease of doing business across borders
3. Falling communication and coordination costs
4. Increasing competition
 GLOBAL FACTORY
It is more about the recent
organizational form designed to
provide flexibility and resilience in an
increasingly complex operating
environment.
Global factory cited by Buckley P. (2017)
 29% of global manufacturing ouput (2019)
17% from America's share
8% Japan
5% Germany
(Cited by U.N. data)
 THEORIES OF THE
INTERNATIONAL FIRM
International trade - restricts itself to the
important and export of goods and
services.

International business - refers to

everything that international trade covers,
as well as environmental analysis and
consideration of political, economic, and
social opportunities.
 COMPARISON
Traditional MNE
Internalization of operations
and knowledge
Possible evolution from
internal to partial
externalization of operations
knowledge transfer (often
parent to affiliate)
Key contribution of
international production -
lower cost
Global Factory
Internalization of knowledge;
Externalization of (some)
operations
Strategic mix of internal, quasi-
internal and externalization of
activities
Knowledge sourcing (from
affiliates and external partners)
Key contribution of international
production - source of
competitive advantage
 INTERNATIONAL BUSINESS IN
CONTEXT
It relates to any situation where the
production or distribution of goods or
services across country borders.
 COMPARISON
Traditional MNE Global Factory
Accommodating Pressures for flexibility,
demands for low cost efficiency, and
and local resiliency.
responsiveness.
 INTERNATIONAL TRADE THEORY
& THE FIRM
International trade - It is the concept of
this exchange between people or entities
in two (2) different countries.
 COMPARISON
Traditional MNE
Managed trade at transfer
prices within the firm.
Importance of created assets
and product variety.
Global Factory
Mix of managed and 'free'
trade; value added trade
under contractual terms
Importance of created assets
and product variety
Fuller integration of trade,
production, and contractual
relationships
Accelerates dynamism of
comparative advantage
INSTITUTIONAL DIMENSION It is the activities of people who have
an interest in particular institutional
arrangements.

Traditional MNE
Firms as largely national phenomenon - MNE as special
case
External institutions as 'given' and fixed, e.g. regulations
Institutional distance between countries (psychic
distance) as a cost

Global Factory
International firms as the norm - national firms as
special case.
Firms can be born global institutions
It is an institution working with, influenced by, and
influencing other institutions
Costs and benefits of locational institutional differences
 THE POLITICAL DIMENSION

Government decision

Traditional MNE: country level

Global factory: forecasting &
managing political risk
Cited by Buckley, J., Enderwick, P., and Cross, A. (2018)
 COMPARISON
Traditional MNE Global Factory

MNE-state (host) Lead firm and

interaction relationships with other
global factory
constellation
BELT & ROAD CONSULTATION MECHANISM

Cited by Rabena, A.J. (2021)

THE SOCIETAL DIMENSION

Culture - "language &

communication"
 COMPARISON
Traditional MNE Global Factory
Understanding Managing cultural
cultural differences differences
Measures of culture Measures of culture
and minimizing and opportunities to
cultural conflict use cultural differences
National culture
GERMANY JAPAN

Cited by Codedesign (n.d.)

 THE ECONOMIC DIMENSION

How people's economic

manufacturing processes
have changed.
Cited by Steger, M. 2013
 COMPARISON
Traditional MNE Global Factory
Accepts the 'givens' of Attempts to augment
economics-preferences, natural endowments by
endowments, and investing in new
technology. technologies, including
marketing skills, to change
technology, and
preferences.
WHIRLPOOL CORPORATION

Cited by Whirlpool Corporation (2021)

 FOREIGN OPERATIONS STRATEGY
Operations Strategy
- is an aspect of operations management
that is concerned with long term planning
for a company's customer service and
business strategies.
 FOREIGN OPERATIONS STRATEGY
Foreign Operations Strategy
- it is a business plan or strategy created by a
company to do its business in
international/foreign markets.
- it requires analyzing the foreign market,
studying resources, defining goals, understanding
market dynamics & develop offerings.

Foreign Operations strategy for a company

looking to grow is a continuous process.
 COMPARISON
Traditional MNE
Entry and operating modes
decided by headquarters,
with emphasis on
operational efficiency.
Built around issues of where,
why, how, and when.
Global Factory
Same (4) issues, plus
governance issue
Wilder set of options;
greater flexibility in mode
switching.
Coordination skills favor
lower control modes.
Allocation of value added,
as well as operational
efficiency and flexibility
 CORPORATE SOCIAL RESPONSIBILITY
- it is a self-regulating business model
that helps a company be socially
accountable itself, its stakeholders, and the
public.

- It has (4) main types which are

Environmental Responsibility, Ethical
Responsibility, Philanthropic Responsibility,
and Financial Responsibility.
 COMPARISON
Traditional MNE Global Factory
Internally managed and Developed and managed
monitored by headquarters. by contract.
Vulnerability of competitive
assets to reputational risk.
Compliance may be
outsourced.
Uncertainty regarding
scope of responsibility.
 MARKETING STRATEGIES
- it refers to a business's overall game
plan for reaching prospective consumers
and turning them into customers of their
product or services.
- It is often revolve around the 4 P's
which are product, price, promotion, and
place.
 COMPARISON
Traditional MNE
Analysis, Planning, and
Implementation of corporate
activities.
Domestic marketing first, then
international.
Introduction of new products in
home first, then internationalization.
Integration-responsiveness
framework.
Adaptation vs. Standardization
Innovate, standardize and
internationalize sequentially
Global Factory
Marketing as information collection and
action.
Simultaneous global marketing of
production.
Introduction of new products as
appropriate for any market.
Flexibility integration and attention to
responding to key international
markets.
Both-achieved through modularization,
flexibility and information gathering.
Simultaneous innovation,
standardization, and globalization.
 INTERNATIONAL PRODUCTION
& LOGISTICS STRATEGIES
Traditional MNE
Focus on minimization of location cost.
Managements of largely owned activities
Separation of location and control
decisions.
Knowledge transfer
 INTERNATIONAL PRODUCTION
& LOGISTICS STRATEGIES
Global Factory
Focus on minimization of overall cost.
Trust and coordination key to supply
chain integration.
Simultaneous location and control
decisions.
Knowledge sourcing
 INTERNATIONAL PRODUCTION
& LOGISTICS STRATEGIES
Three (3) Strategic Purposes:

Low-cost production Skills, information, and Proximity market

knowledge
It is the responsibility of the management to coordinate production units in a manner that
minimizes value for the Multinational Enterprise as a whole.
"Designed by Apple California. Assembled in China"
 GLOBAL INNOVATION
MANAGEMENT

According to Mit ID Innovation,

Global Innovation Management is a
structured process that generates,
captures, discusses, and improves a
valuable site or alternate thinking.
 COMPARISON
Traditional MNE
Largely internal exchange
of technology.
In-house research and
development (R&D), linked
to marketing and
production.
Potential leakage to
competitors.
Trust likely to be symmetric.
Global Factory
External trade in technology
Learning from contractors
Coordination challenges with the
potential separation of R&D,
production, markets.
Possible technnology exposure in
higher risk locations.
Orchestration of dispersed
innovation.
Trust more likely to be
asymmetric.
 FINANCIAL MANAGEMENT
STRATEGIES

Traditional SME Global Factory

As portfolio of diverse assets,
modified by control issues.
Centralized finance function
Largely home financed, at least
initially.
Financial responsibility largely to
home country.
Local firm as internal capital
market.
Coordination by lead firm-
cooperation with satellite firms and
international funding bodies.
Widespread shareholdings, owners,
and financial responsibilities.
BMW's Foreign Exchange Risk Management
 HUMAN RESOURCES
MANAGEMENT STRATEGIES
Traditional SME
Choice of staffing strategy
Hierarchiall structures
Internal relationship building
Centralization and equilibrium

Global Factory
Management of diffuse workforce;
internal and external; geocentric
Diversity of structures
External relationship building
Decentralization and disequilibrium
 CROSS-CULTURAL MANAGEMENT
STRATEGIES
Traditional MNE
Measurement of cultural differences
Adaptation to cultural differences

Global Factory
Utilizing cultural diversity as advantages
Development of global managament
mentality
 FORMULATING THE STRATEGIC
RESPONSE
Traditional MNE
Core function of headquarters
Top-down initiated from centralized
planning unit
Balance of global and local demands
Sources of competitive advantage-
efficient production and process
Global Factory
Orchestrated, as opposed to directed
Increased devolution of responsibility
to subsidiaries
Outsourced units may inititae
complementary strategies, but are
carefully controlled by contract.
Sources of competitive advantage-
strong advantage in cross-border
coordination capability
Expertise in contractual control on
horizantal basis
 IMPLEMENTING THE STRATEGIC
RESPONSE
Traditional MNE
Competition largely external and in final markets
Key strategic tasks-internal coordination and
integration

Global Factory
Competition both external and internal, and in
factor markets for suppliers and strategic assets
Key strategic tasks-strategic relationships
overall coordination
THAT'S A WRAP!
THANK YOU FOR LISTENING!