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    Add as FriendChapter 7: Multinational Formation

    by: Rogers

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    1 : Chapter 7: Multinational Formation Keith Head Sauder School of Business
    2 : The “take-away” for this chapter Chapter 7 asks “Where should we do the things we do?” At home: the country where top mgmt is based. Abroad: offshore, overseas, in a foreign country The answer: “It all depends on the 4 elements of MN strategy: trade costs, factor advantages, PLEoS, market sizes.”
    3 : Nestle
    4 : IBM worldwide
    5 : LG Electronics (part of LG Group, formerly Goldstar Electronics)
    6 : Levels of Multinational Strategy Who is the we in “Where should we do it”? An individual business unit? business strategy A collection of business units under the same ownership? corporate strategy A collection of business units linked through a mix of equity ties and long term contractual arrangements ? network strategy
    7 : Multinational (single) “Business” Strategy H-form F-form R-form
    8 : Examples of Centralization Home Centralization: Boeing commercial aircraft assembly in U.S. (mainly Seattle) Airbus commercial aircraft assembly in EU (mainly Toulouse) Foreign Centralization: Mattel’s Barbie dolls (2 factories in Dongguan, China +1 in Malaysia +1 in Indon.) Matsushita’s TVs (Malaysia)
    9 : Boeing’s Everett Factory: the largest building in the world (472 million cubic feet of space )
    10 : Boeing’s Everett Factory: sole location of 747 assembly
    11 : Boeing’s 747
    12 : Nestle, the Replicator 254,000 Employees in 508 Factories in 85 Countries (2002 Management Report)
    13 : Critical Foreign Market Size to Justify Overseas “Replication”
    14 : Critical Distance to Justify Overseas “Replication”
    15 : At Home, Abroad, or Both? The Answer Depends (in part) on Where Demand Is
    16 : Home Centralization benefits from Strong PLEoS Low trade costs to export to foreign country Large home market Home country has factor advantages
    17 : Foreign Centralization benefits from Strong PLEoS Low trade costs to import from foreign country Large foreign market Foreign country has factor advantages
    18 : Replication Form benefits from Weak PLEoS Both markets are large High trade costs impede exports & imports Unimportant factor advantages: costs of production similar across countries.
    19 : Multi-product Multinationals Corporate multinational strategy considers best form for firms operating in more than one business (product). Relationships between products: Unrelated Vertical (intermediate inputs vs final outputs) Horizontal (complements vs substitutes) Joint products
    20 : Multinational Forms: Vertically Related Products Upstream (U) creates inputs Downstream (D) uses U inputs to create outputs Examples: Teaching: U is PPT preparation, D is presentation to students Movies: U is writing & casting, D is filming & editing (or U is movie production and D is movie exhibition) Steel: U is blast furnace, D is steel furnace & rolling mill
    21 : Bao Steel’s integrated works
    22 : ExxonMobil Upstream: exploration in 37 countries and “production” in 26 countries Downstream: refining and “marketing” Owns 45 refineries, located in 25 countries Operates 37,000 retail sites in 100+ countries “presence in about 200 countries”
    23 : ExxonMobil’s “Upstream” Sites
    24 : ExxonMobil’s “Downstream” Sites
    25 : Multinational Forms for 2 vertically related products
    26 : Vertical Specialization good if Strong PLEoS Low trade costs to export U to foreign country Low trade costs to import D from foreign country Home country has factor adv. for U Foreign country has factor adv. for D
    27 : Branching Form Examples: Coca Cola’s concentrate (U) and bottling (D) Subaru’s engines (U) and car assembly (D) Benefits from Low trade costs on U, high on D Low PLEoS on D, high on U Home factor adv. in U, weak factor advs. in D
    28 : Multisourcing form Defn: procuring same input from multiple source countries Examples: Refinery in one country, sourcing crude oil from multiple drilling sites (in different countries) Nike’s “network” strategy in shoe mnfg. Benefits from Low trade costs (for U & D) Diseconomies of scale for U Uncertain (unpredictable) factor adv. for U.
    29 : Forms for 2 horizontally related products, served by upstream
    30 : Key trends in world economy Falling trade costs More efficient transportation (containers, EDI, use of air transport) Lower tariffs, WTO oversight of disguised protection Technology-powered improvements in long distance communication Rising economies of scale?
    31 : Implications for Multinationals Less Replication More Vertical Specialization Firms face very different industry conditions Contrast Nestle, Boeing, Mattel Will continue to pursue divergent strategies

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