International Business

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Slide 2.1

Chapter 2

The Multinational enterprise (MNE)

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009

Slide 2.2

The Multinational enterprise (MNE)
• Objectives
• The nature of multinational enterprises
• Strategic management and multinational
enterprises
• A framework for global strategies: the FSA/CSA
matrix.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009

Slide 2.3

Objectives






Describe the characteristics of MNEs.
Explain the internationalization process.
Explain why firms become MNEs.
Discuss the strategic philosophy of these firms.
Introduce a country/firm framework for examining
a firm’s competitiveness.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009

Slide 2.4

The Multinational enterprise (MNE)
• A company headquartered in one country but with
operations in one or more other countries.
• MNEs often downplay the fact that they are
foreign-held.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009

Slide 2.5

The nature of MNEs

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009

Slide 2.6

Table 2.1

The world’s largest 500 multinational enterprises, 2007

Source: Authors’ calculations and adapted from Fortune, The Global 500, July 23, 2007 Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009

Slide 2.7

Characteristics of MNES
• Affiliates must be responsive to a number of
important environmental forces, including
competitors, customers, suppliers, financial
institutions, and government.
• Draw on a common pool of resources, including
assets, patents, trademarks, information, and
human resources.
• Affiliates and business partners are linked
together by a common strategic vision.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009

Slide 2.8

Figure 2.1

The multinational enterprise and its environment
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009

Slide 2.9

The internationalization process
• Internationalization: The process by which a
company enters a foreign market.
• Not all international business is done by MNEs.
Indeed, setting up a wholly-owned subsidiary is
usually the last stage of doing business abroad.
• Why do businesses wait to set up wholly-owned
subsidiaries?
– Foreign markets are risky.

Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009

Slide 2.10

A typical internationalization process
• Initially, the firm might license patents, trademarks or technology to a foreign company in exchange for a fee or
royalty.
• The firm sees a potential for extra sales by exporting and uses a local agent or distributor to enter a foreign market. • The firm may use exporting as a “vent” for its surplus production and might have no long-term commitment to

the international market.
• As exports become more important, the MNE will set up
an office for its sales representative or a sales subsidiary. • The firm might set up local packaging and/or assembly
operations.
• Finally, the firm will set up a wholly-owned subsidiary
(FDI).
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009

Slide 2.11

Figure 2.2

Entry into foreign markets: the internationalization process Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009

Slide 2.12

Why do firms become MNEs?
• to diversify themselves against the risks and
uncertainties of the domestic business cycle;
• to tap the growing world...
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