Multinational enterprises and the global economy

A perspective on regional and global strategies of multinational enterprises

A.Rugman and A.Verbeke, 2004

Group 3

Nature of globalization

• Globalization is a phenomenon of trade liberalization (the increased circulation of goods) and financial liberalization (the expanded circulation of capital) around the globe.

• Semi-globalization: region matters

Dimensions of globalization

• Geographic (concept of Triad)

• Mode of entry (products, licensing, FDI)

• Process under globalization (factors of production, sales)

MNE

• Multinational enterprise produces and/or distributes products and/or services across national boundaries

• 500 largest MNE are responsiblefor 90% of FDI and 50% of international trade

ARE THEY GLOBAL?

Why globalize?

• To recover innovation costs of engineered commodities (innovative and differentiate products, resulting from high capital investment and knowledge development)

• To benefit from economy of scale

• To exploit national differences

Definitions • Global (9): 20-50% sales in every region of Triad• Bi-regional(25): 20-50% sales in two regions• Home region oriented (320): more then 50% in the

region of origin• Host region oriented (11): more then 50% in the

region other then region of origin• No data (135)

Global companies (9)Company Region Revenue

USD bn

North America

Europe Asia-Pacific

IBM NA 85.9 43.5 28.0 20.0

Sony AP 60.6 29.8 20.2 32.8

Philips E 29.0 28.7 43.0 21.5

Nokia E 27.9 25.0 49.0 26.0

Intel NA 26.5 35.4 24.5 40.2

Cannon AP 23.9 33.8 20.8 28.5

Coca-Cola NA 20.1 28.4 22.4 24.9

Flextronics AP 13.1 46.3 30.9 22.4

LVMH E 11.0 26.0 36.0 32.0

Data are for 2001

Bi-regional (25)Company Region Revenue

USD bn

North America

Europe Asia-Pacific

BP E 174.2 48.1 36.3 NA

Toyota AP 120.8 36.6 7.7 49.2

Nissan AP 49.6 34.6 11.0 49.7

Unilever E 46.1 26.6 38.7 15.4

Motorola NA 30.0 44.0 14.0 26.0

GlaxoSmithKline E 29.5 49.2 28.6 NA

EADS E 27.6 33.7 44.9 10.2

Bayer E 27.1 32.7 40.3 16.1

Ericsson E 22.4 13.2 46.0 25.9

Alstom E 20.7 28.0 45.1 16.1

Aventis E 20.5 38.8 32.1 6.4

Diageo E 18.6 49.9 30.2 7.7

Data are for 2001

Home-region based (320)Company Region Revenue

USD bn

North America

Europe Asia-Pacific

Wal-Mart NA 219.8 94.1 4.8 0.4

General Motors NA 177.3 81.1 14.6 NA

Ford NA 162.4 66.7 21.9 NA

General Electric NA 125.9 59.1 19.0 9.1

Mitsubishi AP 105.8 5.4 1.7 86.8

Mitsui AP 101.2 7.4 11.1 78.9

Total E 94.3 8.4 55.6 NA

Itochu AP 91.2 5.5 1.7 92.1

Allianz E 85.9 17.6 78.0 4.4

Volkswagen E 79.3 20.1 68.2 5.3

Siemens E 77.4 30.0 52.0 13.0

Sumitomo AP 77.1 4.8 NA 87.3

Data are for 2001

Host-region oriented (11)Company Region Revenue

USD bn

North America

Europe Asia-Pacific

Daimler Chrysler E 136.9 60.1 29.9 NA

ING Group E 83.0 51.4 35.1 3.4

Ahold E 59.6 59.2 32.8 0.6

Honda AP 58.9 53.9 8.1 26.9

Santander E 30.4 55.7 44.3 NA

Le Lion E 19.6 75.9 22.0 1.0

AstraZeneca E 16.5 52.8 32.0 5.2

News Corp. AP 13.8 75.0 16.0 9.0

Sodexho E 10.6 50.0 42.0 NA

Manpower NA 10.5 19.1 68.6 NA

Wolseley E 10.4 66.3 28.7 NA

Data are for 2001

Firm specific advantages (FSA)• Location-bound: benefit a company only in

particular location– LB FSA are limited to home region – Growth of home region is a benefit and a threat– Learning process in host region is needed

• Non location-bound: easy transferable across borders as an intermediate product – Level of transferability determines success

• Balance in FSA can be achieved through regional headquarters

Type comparison

Company Type Revenue

Honda Motor Host-region

oriented

58.9

Mitsubishi Home-oriented 105.8

Toyota Motor Bi-regional 120.8

Production chain

• Upstream activities: offshore sourcing, rational manufacturing– Easy to organize due to similarities in management– Mainly usage of incomplete integration of factor

markets (international arbitrage)

• Downstream activities: distribution channels, branding– Regional organizing principals limit number of

distribution strategies

• Asymmetry

Example: Nike

• 99% of production in Asia• 58.2% of sales in Americas• 60.2% of employees in Americas• BUT 660,000 independent contract employeesStrategyBrand name is a dominant FSA (downstream)also ability to link attractive host country production

factors with upstream FSA

Effect on structure

• Different market positions, regional environment require specific strategies

• Decentralization reflects involvement of regional units to corporate planning for successful downstream activities

• Centralization is appropriate for planning upstream activities given information availability and reduction both production and coordination costs

Effect on performance

• Some benefits (taxes, cheap labor, common purchasing) are easy to realize

• Expansion to home region is easy to absorb

• Broader geographic scope strains absorbing capacity, especially in short run

• Broader expansion promises broader benefits, but difficult to manage

Conclusions

• A few companies are truly global• Necessity to balance NLB FSA and LB FSA for

every activity in every region• Easier to benefit from globalization in upstream

activities then downstream one• For successful operation regional headquarters are

essential• Performance increases in expansion of home

region and decreases in broader expansion (short term)