FDI and corporate strategy

Question 1

What are the five necessary elements in designing a global expansion strategy?

Answer 1

1. Awareness of profitable investment and building competitive advantage;
2. Selecting a mode of entry;
3. Adjusting the effectiveness of the entry mode;
4. Using appropriate evaluation criteria;
5. Estimate the longevity of competitive advantage (transferable and not easily duplicated

2, 3, 4 are related to mode of entry: select, adjust and evaluate;
1 and 5 are related to competitive advantages: build and estimate

Question 2

What are the three strategies of MNC?

Answer 2

1. Innovation-based strategy (Adapting to the foreign market by constantly innovating);
2. Mature MNC (economies of scale/scope - penetrate the market by low costs and large coverage);
3. The senescent MNC (scanning for opportunities globally);

Question 3

What is the assumption of classical theory that MNCs proved to be wrong?

Answer 3

Classical theories are based on the assumptions that only goods can be transported across borders. Other factors of production such as labor, land, and capital are immobile.

This is not true in today’s world. MNCs can go to foreign countries and exploit the resources.

Question 4

What are the motivations of MNCs?

Answer 4

1. Seek raw materials
2. Lower cost of production
3. Seek market
4. Seek knowledge
5. Keep domestic customers
6. Imperfection of financial markets:
   (reduced taxes, currency controls, diversified risks–diversify revenue streams)

Question 5

How to choose the mode of entry?

Answer 5

Think about: in which form does the intangible capital take place?

1) embodied in the products; no need to adapt == export
2) can be written down and transmitted objectively == licensing
3) organizational skills that are inseparable from the firm == production (internalization)

Question 6

What does a MNC need to make sure before exporting?

Answer 6

Need to be established in domestic market, develop brands, distribution channels and supply chain.

Question 7

What is the advantage of economies of scale?

Answer 7

1. low cost (i.e. software)

2. bargaining power in supply chain (i.e. Wal-mart)

Question 8

What is the advantage of economies of scope?

Answer 8

1. Instead of building multiple facilities to build products; you can use one facilities to build multiple products.
   i. e. Bombardier - engines

Question 9

What is a senescent MNC?

Answer 9

They are relatively less mature:
– if MNCs hold on to the same suppliers, they bear the risk of losing quality. Thus, they integrate new suppliers to control the quality.