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Multi National Enterprise: By: Rohit

A multinational enterprise (MNE) operates subsidiaries across foreign countries. Early MNEs came from developed countries and used firm-specific advantages, explained by the ownership-location-internalization (OLI) model. Later MNEs from developing countries used joint ventures and networks due to market volatility, explained by the linkage-leverage-learning (LLL) model. MNEs employ international, multidomestic, global, or transnational strategies balancing costs, competencies and responsiveness. MNEs benefit host countries through jobs and growth but also exploit low wages and shift profits abroad.

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94 views15 pages

Multi National Enterprise: By: Rohit

A multinational enterprise (MNE) operates subsidiaries across foreign countries. Early MNEs came from developed countries and used firm-specific advantages, explained by the ownership-location-internalization (OLI) model. Later MNEs from developing countries used joint ventures and networks due to market volatility, explained by the linkage-leverage-learning (LLL) model. MNEs employ international, multidomestic, global, or transnational strategies balancing costs, competencies and responsiveness. MNEs benefit host countries through jobs and growth but also exploit low wages and shift profits abroad.

Uploaded by

rohitchadda28
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Multi National Enterprise

By:
Rohit
Multinational Enterprise
A multinational enterprise (MNE) is defined as
one that has operating subsidiaries, branches or
affiliates located in foreign countries.
The ownership of some MNEs is so dispersed
internationally that they are known as
transnational corporations.
The transnational Corporations are usually
managed from a global perspective rather than
from the perspective of any single country.
MNE – early movers
• MNE early-movers
• Mostly came from developed countries
• enjoyed firm-specific competitive advantage
• Foreign investment is explained with
ownership-location-internalization (OLI) model
MNE Latecomers
• MNE latecomers
• are often a response to uncertainty and
market volatility
• Use route of joint ventures & business
networks
• Many have come from developing countries
• Explained with LLL model
ownership-location-internalization
(OLI) model
• Ownership advantage
refers to the firm-specific competitive advantage MNE must
have before they engage in FDI to overcome the inherent
liability of being foreign investors.

• Location advantage
refers to the attractiveness of specific sites for investment
by MNE.

• Internalization advantage
refers to the benefit of internal control instead of other
modes of market entry without direct control such as
export and licensing.
Modification for MNE
latecomers
• asset-seeking rather than asset exploiting
• inward investment rather than outward
• investment
• Invest in developing countries rather
than in the more developed countries.
• Partial internalization or external modes
instead of full internalization.
Linkage-leverage-learning
(LLL) model
• Focus on MNE latecomers
• FDI via external linkage, leverage and
learning rather than exploiting existing
internal advantages via internal control.
• Dynamic process of MNE formation
rather than the static bias of the OLI
Model.
FDI
• strategic choice
• The primary motive for FDI is to explore new
ownership advantages from external sources
• preferred strategic alliance as the primary entry
mode
• (b) the liability of foreignness can be remedied
through strategic alliances between foreign and
local firms
MNE – 4 basic Strategies
International Strategy
• Create value by transferring valuable core
competencies to foreign markets that indigenous
competitors lack
• Centralize product development functions at home
• Establish manufacturing and marketing functions in
local country but head office exercises tight control
over it
• Limit customization of product offering and market
strategy
– Strategy effective if firm faces weak pressures for local
responsive and cost reductions
Multidomestic Strategy
• Main aim is maximum local responsiveness
• Customize product offering, market strategy
including production, and R&D according to
national conditions
• Generally unable to realize value from
experience curve effects and location
economies
• Possess high cost structure
Global Strategy
• Focus is on achieving a low cost strategy by
reaping cost reductions that come from
experience curve effects and location economies
• Production, marketing, and R&D concentrated in
few favorable functions
• Market standardized product to keep costs low
• Effective where strong pressures for cost
reductions and low demand for local
responsiveness
Transnational Strategy
• To meet competition firms aim to reduce costs,
transfer core competencies while paying attention to
pressures for local responsiveness
• Global learning
– Valuable skills can develop in any of the firm’s world
wide operations
– Transfer of knowledge from foreign subsidiary to
home country, to other foreign subsidiaries
• Transnational strategy difficult task due to
contradictory demands placed on the organization
– Example : Caterpillar
MNE - benefits
•MNC investments fuel the local growth-engines

• Higher wage-incomes, stimulating local businesses

• Training & human resource development build


higher-skilled labor force

• Contribute to government taxes & fees, or revenues


by purchasing and privatizing existing national assets
MNE - Costs
► Exploitation of low-wage labor; expatriate managers remit
incomes & firm profits to the developed nations’ most privileged
classes

► Capital-intensive production worsens LDC poverty and income


inequality

► Government corruption, reaping tax concessions, subsidies, lax


enforcement

► Transfer pricing shifts accounting to off-shore tax havens


minimizing corporate tax burdens and reducing nation-states’ tax
revenues

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