Copyright Richard Lynch 2009.

All rights reserved

Global Management

How do we manage international and global companies?

Copyright Richard Lynch 2009. All rights reserved www.global-strategy.net

Global Management: www.global-strategy.net

 Copyright Richard Lynch 2009. All rights reserved

How do we manage international and global companies?

Why do we focus primarily on large companies, like Multi-National Enterprises? How do we define MNEs Explore the nature and extent of MNE activities Relate such activities to the interests of the home and host countries of MNEs: the C-CB paradigm.

Global Management: www.global-strategy.net

 Copyright Richard Lynch 2009. All rights reserved

Why do we focus primarily on large companies, like MNEs?

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.

Global Management: www.global-strategy.net

 Copyright Richard Lynch 2009. All rights reserved

MNEs: some definitions-1

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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 Copyright Richard Lynch 2009. All rights reserved

MNEs: some definitions-2

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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 Copyright Richard Lynch 2009. All rights reserved

MNEs: some definitions-3

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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 Copyright Richard Lynch 2009. All rights reserved

Significance of MNEs in the world economy

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

Global Management: www.global-strategy.net

 Copyright Richard Lynch 2009. All rights reserved

Worlds leading Global Non-Financial MNEs

MultiNationalEnterprise Ranked by Foreign assets in US$Mn Total assets in US$Mn

General Electric, USA Vodafone, UK Ford Motors, USA General Motors, USA British Petroleum, UK Exxon Mobil, USA

448,901 247,850 179,856 173,690 154,513 134,923

750,507 258,626 305,341 479,603 193,213 195,256

Royal Dutch/Shell, Neth

Toyota Motor, Japan Total Oil, France France Telecom, France
Global Management: www.global-strategy.net

129,939
122,967 98,719 85,669

192,811
233,721 114,636 131,204
Source: UNCTAD database 8

 Copyright Richard Lynch 2009. All rights reserved

Why do MNEs expand internationally-1?

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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Global Management: www.global-strategy.net

 Copyright Richard Lynch 2009. All rights reserved

Why do MNEs expand internationally-2?

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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Global Management: www.global-strategy.net

 Copyright Richard Lynch 2009. All rights reserved

Why do MNEs expand internationally-3?

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.

Global Management: www.global-strategy.net

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 Copyright Richard Lynch 2009. All rights reserved

Global Resource-Based Strategy: the C-C-B Paradigm

World environment
Organisational routes Company (MNE) strategies Competitive advantages of firms: resourcebased Bargaining power between companies and countries Country strategies Competitive advantages of countries: resource-specific Membership of trade block

Outcomes Company subsidiary 1 Company subsidiary 2

Affecting value Company subsidiary 3 added of company

Affecting the welfare of country and trade block

See Lynch Ch 19

Company strategy not aligned to one country Global Management: www.global-strategy.net 12

 Copyright Richard Lynch 2009. All rights reserved

Elements of the C-C-B Paradigm-1

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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Global Management: www.global-strategy.net

 Copyright Richard Lynch 2009. All rights reserved

Elements of the C-C-B Paradigm-2

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