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Multinational Enterprise

Multinational Enterprise – is a term used to describe a business (a company) with widespread international operations

Multinational Enterprise = Transnational Corporation = Multinational Corporation

Global Company – is a term used to describe a business (a company) with widespread international operations which attempts (strives) to standardize (structure) operations in all functional areas. May respond to national market differences when necessary

Roles of Multinational Enterprise Management

Searches the markets for:

- market opportunities
- threats from competitors
- sources of products, materials and financing - personnel or means of productions

Seeks to increase and/or maintain presence in key markets Standardizes (structures) operations in markets. Looks for similarities

Strives to achieve economies of scale through global integration of its functional areas while at the same time being responsive to different local market environment

• International Business – is a business whose activities are carried out across national borders in various sectors of economy (production, services or transportation) 

• Multidomestic Company (MDC) – is an organization with multicountry affiliates, each with own business strategy based on local market conditions

• Global company (GC) – is multinational organization which attempts to standardize and integrate operations worldwide

• International Company (IC) – common term, may refer to both global and multi domestic companies

• Global company (GC) – is multinational organization which attempts to standardize and integrate operations worldwide

- Has a worldwide presence in markets

- Standardizes operations worldwide in one or more functional areas

- Integrates its operations worldwide
 

FDI – Foreign Direct Investment – usually refers to investment in purchase of production/real estate facilities or whole company acquisition on international market

Private equity – in early days of capitalism were “investment arms” or “management” companies used to control FDI and M&A activities of major producers in the US, the UK, Germany, France


Drivers of Globalization

Political. Political unions or preferences given. Political, economical and military unions. Barriers. State of local authorities. Privatization or nationalization

Technological. Innovation in production, transportation, communication, transactions

Market. Clients or open niche (market) in particular country. Global supply Cost. Economies of scales, best country sourcing, low production costs Competitive. Intensity of rivalry in markets of operations.


Environment

Environment or Uncontrollable forces

• Competitive rivalry
• Distributive (channels) • Economic
• Social
• Financial
• Legal
• Physical
• Political
• Cultural
• Technological

Company assets or Controllable Forces

• Capital
• Resources and materials • Personnel
• Production
• Finance
• Marketing
• Sales

TERMS TO KNOW WEEK 1

• MNE
• Global
• IC
• FDI
• Uncontrollable forces
• International environment • M&A
• Divestiture




• International Trade – buying and selling activity between countries, the sale and purchase of goods and services that takes place between trading partners in different countries

• Foreign sourcing – the overseas procurement of materials, components, products or services >>> Best country sourcing

• Comparative advantage theory was introduced by the Scottish economist Adam Smith (1723-1790).

• Comparative advantage theory is an international trade theory. It asserts that individuals or nations trade because they have superior productivity in particular industries, and that they should produce and export goods for which they possess a comparative advantage and import others which other nations possess a comparative advantage for

• Governments may attempt to counter comparative advantage by establishing trade barriers, allowing young, uncompetitive, industries enough time to become established


Laizzes Faire - In economics, laissez-faire (English pronunciation: /ˌlɛseɪˈfɛər/ ( listen), French: [lɛsefɛʁ] ( listen)) describes an environment in which transactions between private parties are free from state intervention, including restrictive regulations, taxes, tariffs and enforced monopolies.

The phrase laissez-faire is French and literally means "let do", but it broadly implies "let it be", or "leave it alone.“ – from Wikipedia


Foreign investments

Portfolio investment – the acquisition of stock (equities) and bonds solely for the purpose of obtaining a return (%) on the funds invested

Direct investment – the acquisition of stock (equities) of the company, sufficient to obtain significant management control

Private International Investments – can be portfolio or direct

Sovereign investments – investments made by sovereign capital management funds, example: China Investment Corporation with over 332 bn USD under control


Foreign Investment
Costly
Time consuming
Risky (environment, authority, corruption, personnel)
Should be controlled
Strategy?
Exit?
Growth?
Export, Import?
Transactions?
Financial risks?
Distribution?
Economies of scale?
Foreign Trade
• Not as risky
• No equity involved
• No overseas production • Middle man?
• Distribution channels? • Logistics?
• Commission?
• Trade barriers?
• Tariffs?
• Quotas?
• Trade associations?


Questions to consider when deciding on new market entry

• Volume of market = Market size
• Intensity of rivalry
• Availability of resources (materials, production facilities, human resources)

Political state
Economic state of the country
Government support of local businesses
Cost of production
Cost of export/import operations
Cost of logistics
Barriers, tariffs and quotas

Why enter new markets?
• Increase overall company sales by opening/adding new market
• Developing markets may grow at faster rate
• New market creation – new markets can add up to high growth of company’s revenue. May yield lower cost of goods sold (COGS)
• Preferential Trade Agreement – FTA, CU, WTO are example of such agreements made to facilitate trade in union and restrict outside trade
• Faster growing markets – new markets can grow at much faster rate and yield higher margins, thus, give competitive advantage to new entrants and lowering overall sector rivalry
• Improved communications – ability to control international operations easily improves overall MNE performance, which affects reporting, operations, logistics

Acquire existing company or start from scratch?
M&A Greenfield
Rapid access to new market
Fast gain of market share
Access to new resources
Fast investment
Possibility of integration and economies of scale
Risk of downfall
Inability to integrate
Low synergy
Low quality of management
Hurdled raw materials base
• Own operations made
• Own production base
• Access to new resources (materials, personnel)
• Latest technology available
• Considerable CapEx
• Time consuming
• Requires experienced start-up management • Intensive pressure from earlier entrants
• Pressure from government


• Investment portfolio analysis • Business portfolio analysis
• Asset analysis
• ABC analysis

In financial terms, ‘portfolio analysis’ is a study of the performance of specific portfolios under different circumstances. The analysis of portfolio are conducted by company analysts, investment professional or outside strategy business consultants


Foreign Market Manufacturing
• Owned subsidiary
• Joint venture – JV
• Licensing agreement
• Franchising
• Contract manufacturing 
• Management contract 
• Strategic alliances


TERMS TO KNOW WEEK 2
• M&A
• FDI
• Portfolio investment
• Direct investment
• Portfolio analysis
• Market entry
• Acquisition
• Comparative advantage
• Best country sourcing
• International trade
• Sovereign investments
• Private international Investments (PII) 
• Economies of scale
• COGS
• Integration
• Portfolio analysis
• ABC analysis
• JV
• Franchising
• Value chain
• Distribution channel • CU, FTA
• Middle man
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