MNES IN THE GLOBAL ECONOMYTOPIC 1A: THE NATURE AND

EVOLUTION OF MNES

OBJECTIVES

• To highlight key aspects of MNE nature

• To identify traditional criteria for determining multinationality

• To point out limitations of such criteria

• To identify MNE’s close relations

• To describe types of MNE foreign involvement

OBJECTIVES, CON’T

• To explain the relationship between ownership and multinationality

• To distinguish between ownership and influence

• To describe old and new MNE organizational and operational models

KEY ASPECTS OF MNES

• Definition: MNEs engage in foreign direct investment (FDI) and own and control value-adding activities in more than one country

• Traditional criteria to determine degree of multinationality

• Their limitations, continuum and multidimensionality

• Ownership and management, private or public, international or national

KEY ASPECTS OF MNES, CON’T

• Motivation, profit or non-profit

• National control and international ownership and management common

• Size, large or modest

TRADITIONAL ASSESSMENT CRITERIA

• Number and size of subsidiaries owned or controlled

• Number of countries with meaningful exposure

• Proportion of its key inputs and outputs exposed

• Internationalization of value activities such as R&D

TRADITIONAL ASSESSMENT CRITERIA, CON’T

• Internationalization of management

• Internationalization of stock ownership

• Concrete advantages gained from internationalization

LIMITATIONS OF TRADITIONAL ASSESSMENT CRITERIA

• Narrow focus, overlooking non-equity cooperative ventures

• Narrow focus, overlooking participation in international networks

MNES’ CLOSE RELATIONS

• International trading firm (ITF)

• Domestic multi-activity or diversified firm (DMAF)

• Unlike these close relations (which also qualify as complex, multi-activity entities and which may have less direct forms of foreign exposure), however, an MNE/TNE both engages in cross-border activities and production

TYPES OF MNE FOREIGN INVOLVEMENT

• FDI, transfer of multiple forms of capital, money capital, management and organizational expertise, entrepreneurship, technology, and access to markets

• FPI, transfer of only money capital

• FDI source of meaningful control, FPI not

OWNERSHIP AND MULTINATIONALITY

• Majority versus minority stake

• 10-25% minimum

CONTROL VERSUS INFLUENCE

• Control does not automatically translate into influence

• The degree of the latter difficult to determine

• Depends on patterns of corporate governance and even culture

• Considerable influence without much ownership (e.g., some forms of sub-contracting), and vice versa, possible

CONTROL AND INFLUENCE, CON’T

• Influence, however, not decisive factor in determining multinationality (e.g., influence over suppliers, distributors, customers, strategic allies, joint venture partners, neworkmembers, and competitors)

• Needs to be coupled with ownership

OLD AND NEW MNE ORGANIZATIONAL AND OPERATIONAL MODELS

• Structural aspects of old MNE model

• Structural aspects of new GC (global corporation) model

• Strategic aspects of old MNE model

• Strategic aspects of new GC model

• Mixed patterns currently observed but GC model gaining traction

MNE STRATEGIC INTEGRATION – RESPONSIVENESS FRAMEWORK