Motives for international expansion (topic 14) Flashcards
Four types of (or motivations for) MNE activity:
- natural resource seekers
- market seekers
- efficiency seekers
- strategic asset seekers
MNE activity
MNEs often pursue multiple objectives simultaneously.
MNE activity can be:
- aggressive (proactive steps are taken to advance strategic objectives);
- defensive (in reaction to competitors or govt).
Natural resource seekers
Overseas expansion takes place to acquire resources of a higher quality/lower cost than is available at home. The objective is greater profitability and strengthened competitiveness.
Includes: physical resources, labour-related resources, skills-based resources.
Natural resource seeking motives generally involve vertical expansion along the value chain.
Physical resources
Primary producers and manufacturers looking for cost minimisation and security in supply of inputs, such as: minerals and metals, fossil fuels, agricultural products.
Some service companies looking to exploit certain location-bound resources, such as: tourists, car rentals, education, medical services. Also companies that support the construction/extractive industries, or that supply firm agglomerations (e.g. film industry).
Investments involve significant capital outlay and high sunk costs.
Labour-related resources
Companies seeking plentiful supply of cheap, well-motivated unskilled/semi-skilled labour.
Undertaken by manufacturing/service firms with high real labour costs at home, to supply labour-intensive intermediate or final products for export. Also encompasses labour-intensive services such as call centres in India.
Skills-based resources
Companies seeking to acquire technological capabilities, management or marketing expertise, and organisational skills.
Examples: technology-intensive sectors, relocation of R&D activities, setting up ‘listening posts’ in key markets.
Market-seekers
Horizontal expansion into particular countries/regions to supply products and services into these or adjacent markets. Underlying objectives for this include:
- to develop/exploit new market opportunities;
- to sustain/protect existing markets and overcome trade barriers;
- to provide proximity to local markets;
- to follow a market leader/rivals/existing customers;
- as a response to foreign govt. incentives.
Efficiency-seekers
Involves MNEs looking to rationalise established resource-based or market-oriented operations. Firms take advantage of different factor endowments (e.g. in labour costs, productivity levels, skills) across an integrating region, by concentrating production in a limited number of key locations from where multiple markets can be supplied.
This: creates efficiencies, generates scale/scope economies, and reduces transportation costs.
Strategic asset seekers
When international production is undertaken to promote the MNE’s long-term strategic objectives. It typically occurs as: an acquisition, merger, or JV.
The aim is to add to the acquiring firm’s existing portfolio of assets with a view to improving international competitiveness; gain access to new markets, generate synergies, reduce transportation costs by producing locally, acquire complementary goods /services.
The value chain
A collection of discrete activities performed within the scope of the firm.
Primary activities
The core business functions from developing a product, to building the operations that make it, and onward through logistics, marketing, distribution, and servicing.
Support activities
That apply to each primary activity and anchor the day to day implementation of the primary activities.
