MNC's Flashcards
Definition: Multinational Corporation
Modern= firm that owns and controls value-adding operations in more than one country
–> emphasis on ownership structure and control
Accurate= firm that engages in value-added international business activities, has affiliates in more than one country, and whose operations and activities in different locations are actively coordinated by one or more HQ organizations
–> emphasis on presence of interdependencies between various economic actors and locations
What are characteristics of MNC operations?
Concentrated in the more “dynamic” (mature/high growth) sectors of the economy and have developed-economy home countries
Explanation: Firm-specific advantages
Strengths specific to a firm as a result of a firm’s ability to coordinate the use of it’s advantage and internalization an asset (physical equipment, intellectual property, access to natural/personal resources, technology).
These asset-type FSAs are complemented by transaction-type FSAs that have the ability to distribute these assets effectively to other parts (subsidiaries) fo the MNE.
Explanation: Country-specific advantages
Strengths of countries (or other regions) that are based on the key variables in the nations aggregate production function (competitive environment, labour force, geographic location, government policies), which can disappear rather quick since they are out of the control of the company.
Why are CSA only “in principle” accessible by all firms?
Full information may not be readily available, there might be cost associated with accessing this knowledge, and governments might introduce barriers to particular groups.
How can CSA’s be classified (5)?
Country-level advantages
1) Exogenous L advantages: independent of economic stage (culture, religion, sociology)
2) Fundamental L advantages: should exist in all states (banking, health care, transport, police)
3) Knowledge infrastructure: enables technological development (university)
Industry-associated advantages
4) Information institutions: requires a certain degree of embeddedness through virtue of constant interaction and phyiscal proximity to acquire it
5) Structural L advantages (wage rates, income level, skilled employees)
What does the CSA-FSA framework explain?
Explains why MNC exist. But does not shed light on the current strategy or provides help for decision-making.
Quadrant: Weak FSA & Weak CSA
Who? Inefficient firms with no consistent strategy or domestically based SMEs with little global exposure
What? Prepare to exit or restructure
Quadrant: Strong FSA & Strong CSA
Need to constantly innovate otherwise falls to lower quadrant as the product line matures
Can freely choose strategy: cost leadership, differentiation, focus
Quadrant: Strong FSA & Weak CSA
Only sustainable long-term option.
Normally chooses low-cost or price competition strategies.
Quadrant: Weak FSA & Strong CSA
Who? Resource-based globally oriented mature firms producing a commodity-type product
What? Strategy of focus and vertical integration (to improve FSA and move quadrant)
Why are so many large firms located in Switzerland?
Post-war premium, weak enforcement of competition policy (cartel paradise), welcoming to foreign investors, CSA (favourable taxes, multilinguistic)
What are the two categories of internationalization motives?
Asset exploiting= intention to exploit its existing FSAs efficiently
Asset augmenting= augment its existing assets, or develop and acquire new FSAs to supplement its older ones
List and explain examples of:
Asset exploiting Internationalization motives
- Market seeking: “sell more”
- Efficiency seeking: “reduce cost” through closeness
- Natural resource seeking: “buy better” (higher quality at lower cost)
- Escape: diversify to mitigate risk and escape poor institutions
- Trade-supportive: customs
List and explain examples of:
Asset augmenting Internationalization motives
- Learning: understand latest technology
- Coordination: set up base for regional development, logistic center, or just to be close to financial institutions
