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Global Management 1
Global Management 1
Global Management
Because Multinational Enterprises (MNEs)are responsible for around 50 per cent of world trade: Toyota, Disney, etc. Because the worlds leading commercial banks are responsible for most of the worlds finance and cash flow: proven by the impact of the financial problems during the 2009 crisis Because it is easier to understand the principles of global management with large companies But small companies, especially those with a unique technological advantage, can quickly become large in a world hungry for new ideas, e.g. Facebook which only started in 2005.
MNE: an enterprise that engages in foreign direct investment (FDI) and owns or controls value-adding activities in more than one country. Distinguish between MNEs with groups of largely independent multi-domestic subsidiaries, i.e. for local markets, and MNEs with global or regional networks. Note that an MNE is not the same as an international trading firm because the MNE can transfer goods or services internally between countries before or after adding value to them from the assets it owns in a foreign country.
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Foreign direct investment (FDI): made outside the home country but inside the investing company: control remains with the investor. FDI means more than financial capital: e.g. it can also include technology, management skills, access to markets, brands, entrepreneurship Distinguish FDI from foreign indirect transfer of resources: the latter covers specific assets and intermediate products, including capital and technology, that move between two independent economic agents.
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Problems arise when moving from the control of FDI to its influence: what is the position of a Japanese Keiretsu arrangement or a German bank shareholding? And what about alliances? If Samsung (Korea) agrees with Philips (Netherlands) to market some of its electronics products in Europe, to whom is the investment credited? And other forms of collaboration with customers, suppliers and competitors? e.g. a sole supplier to Nissan (UK)
Hence a broad definition is essential to cover the plurality of economic activities of MNEs.
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Number of enterprises: 77,000 parents with 770,000 affiliates (2006) Cross border Mergers and Acquisitions: 716 in 2005 Total assets of foreign affiliates: US$ 45,546 billion (2005), growing +21% between 1996-2000 Sales of foreign affiliates: US$ 22,171 billion (2005), growing +10.1% between 1996-2000 Employment of foreign affiliates: 62,095 (thousands), growing +11% between 1996-2000 Keypoint: In 2005, MNEs sales of foreign affiliates may account for as much as 50% of world GDP, up from 25-30% in mid-1980s.
Source: Dunning & Lundan 2008/UNCTAD
General Electric, USA Vodafone, UK Ford Motors, USA General Motors, USA British Petroleum, UK Exxon Mobil, USA
129,939
122,967 98,719 85,669
192,811
233,721 114,636 131,204
Source: UNCTAD database 8
Resource seekers: invest abroad to acquire specific assets at a lower real cost than home markets. Three main types physical resources, e.g. RTZ in minerals cheap and well motivated labour, e.g. Sony in China buy technology or marketing expertise, e.g. Volkswagen in Brazil Market seekers: invest in a particular country or region to supply goods or services to markets in these or adjacent regions Motives protect or exploit markets Adapt to local tastes Avoid excessive transport costs from home country Part of global production or marketing strategy Host governments encourage investment
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Efficiency seekers: rationalise the resource base or market-seeking opportunity in order to gain from common governance and efficiencies Benefits usually economies of scale or scope Often experienced MNEs Cross-border markets must be well developed and open Strategic asset seekers: acquire assets of foreign corporations in order to promote long-term strategic objectives, such as competitiveness. Less to import specific cost or marketing advantages More to strengthen own competitive portfolio or weaken competition There may be other reasons for expansion, e.g.escape home country restrictions, support exports or imports, passive investments.
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Smaller companies? can these reasons for the expansion of large MNEs also be applied to smaller companies? Answer: Yes but the reasons for smaller companies have not been researched as thoroughly as those for the large companies. Research base for large companies: Dunning, J. and Lundan , S.M. (2008) Multinational Enterprises and the Global Economy, Edward Elgar Importantly, the reasons for international and global company expansion are mutually linked with that behind country activity. The two company and country bargain with each other for benefits and co-operation Hence: the Company-Country-Bargaining Paradigm which we explore next.
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See Lynch Ch 19
World environment: the institutions, structures and relationships that make up the world community. Institutions: World Bank, World Trade Organisation, etc. Structures: World system of tariffs and trade, defence, communications, etc. Relationships: country and company relationships within broader economic and political structures, cultures and history. Company: each company will have sustainable competitive advantages based on its resources and market position: Brands and reputation, knowledge and skills, innovative ability, architecture of relationships. those that arise as a result of being a subsidiary of a parent those specific to the MNEs existing international activities: better access and knowledge, ability to exploit cheaper sources of labour, differences in capital structure, etc.
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Country: each country will have some advantages based on its resources and its location special skills, education, infrastructure of roads and telecomms economic and government policies on inflation, etc. natural wealth of country, e.g. oil, agriculture, climate membership of trade block(s) cultural and historic links Bargaining: companies and countries undertake to discuss with each other the possibilities of doing business through this process: Tariffs, taxes and investment incentives Local competition, barriers to trade, market size and growth Government support directly and indirectly Relationship with other members of trade block.
Note: C-C-B Paradigm heavily adapted from the late Prof John Dunnings earlier O-L-I paradigm to focus on international and global strategy issues.
Global Management: www.global-strategy.net 14