TIẾNG ANH KINH TẾ Slides ESP multinational companies

UNIT MULTINATIONAL COMPANIES What is a multinational company?  The term ‘multinational’ is used for a company which has subsidiaries or sales facilities throughout the world  Another expression for this type of business enterprise is ‘global corporation’  Example: Coca Cola, Heinz, Sony, Hitachi, Akzo, General Motors… What are their characteristics?  They control vast sums of money  They operate in countries with widely differing political and economic systems 3.Multinational strategy A strategy of adapting products and their marketing strategies in each national market to suit local preferences • Multinational strategy allows companies to closely monitor buyer preferences in each local market and respond quickly and effectively as new buyer preferences emerge • It does not allow companies to exploit scale economies in product development, manufacturing, or marketing • Global strategy • • • • A strategy of offering the same products using the same marketing strategy in all national markets The main benefit of a global strategy is its cost savings due to product and marketing standardization It allows managers to share lessons learned in one market with managers at other locations It may cause a company to overlook important differences in buyer preferences from one market to another What are their reasons for going international? • • • • • • Their national markets become saturated Some countries set up trade barriers – usually tariffs or quotas – against a company’s products Cheap labour and natural resources abroad, especially in developing countries Expand sales Diversify sales Gain experience Direct exporting  Direct exporting – A practice by which a company sells its products directly to buyers in a target market  Sales representatives represent only its own company’s products, not those of other companies  Distributors take ownership of the merchandise when it enters their countries Indirect exporting  In direct exporting – A practice by which a company sells its products to intermediaries who resell to buyers in a target market  Agents: Individuals or organizations that represent one or more indirect exporters in a target market  Export Management Companies: Companies that export products on behalf of indirect exporters  Export Trading Companies: Companies that provide services to indirect exporters in addition to those activities directly related to clients’ exporting activities Licensing Licensing – Practice by which one company owning intangible property (the licensor) grants another firm (the licensee) the right to use that property for a specified period of time E.g -Hitachi (Japan) licenses from Duales System Deutschland (Germany) technology to be used in the recycling of plastics in Japan -Hewlett-Packard (United States) licenses from Canon (Japan) a printer engine for use in its monochrome laser printers Licensing Advantages of Licensing: -Licensors can use licensing to finance their international expansion -Licensing can be a less risky method of international expansion for a licensor Licensing helps shield the licensor from the increased risk of operating its own local production facilities in unstable or hard-toassess markets -Licensing can help reduce the likelihood that a licensor’s product will appear on the black market -Licensees can also benefit from licensing by using it as a method of upgrading existing production technologies 14 Strategic Alliance Strategic Alliance – Relationship whereby two or more entities cooperate (but not form a separate company) to achieve the strategic goals of each E.g -An alliance between Siemens (Germany) and Hewlett-Packard (United States) to create and market devices used to control telecommunication systems 14 Strategic Alliance Advantages of Strategic Alliance -Companies share the cost of an international investment projects -Companies use strategic alliances to tap into competitors’ specific strength -Some companies can gain access to a partner’s channels of distribution in a target market Other companies can reduce exposure to the same kind of risks from which joint ventures provide protection 14 Strategic Alliance  Disadvantages of Strategic Alliance -They can create a future local or even global competitor -Conflict can arise and eventually undermine cooperation Explanations for MNCs Mainstream neoclassical economics Caves: appropriabilityintangible asset theory Product cycle theory Marxist theories Mainstream Economics     Explanation of trade: Country will export those goods whose production uses intensively their abundant resource Mundell equivalency – “International transfer of factors of production (capital and technology) through FDI is equivalent to trade in terms of the consequences – for prices and consumption etc.” (expounded by Bhagwati) Location determined by comparative advantage and location theory – production based where most efficient Role of imperfect competition prevented development of formal economic theory regarding multinational companies BUT  MNCs large and operate in imperfect markets  Gilpin: MNC experiences are unique corporate experiences – i.e., IMB invests and produces in many countries in order to maintain good relations with governments  Matters A LOT IF corporations invest or trade ◦ they undoubtedly try to extend power over governments and other firms  New advances in economic theory strategic trade theory and industrial organization – have changed the views of neoclassical economists somewhat Firms Face Disadvantages Overseas Have to meet local criteria Figure out rules; regulations; language Sometimes significant cultural obstacles Labor practices, unions, etc Why not license? Vernon's Product Cycle Theory  American firms have advantage in product development – large domestic market and superior technology and R&D  With large gaps in wealth and technology between countries, firms expand to take advantage of the gaps  First stage: firm develops new product for sophisticated market – saturates it ◦ Requires big investment (Motorola, Nokia) Product Cycle Theory (con’t)  Second stage: Product developed, home market created – then export to other similar (high income) markets  Third stage: technology standardized, less costly – MNC move to middle income country for production  Technology and nature of the market matters Caves: Appropriability Theory Why invest abroad rather than license?  Intangible assets – patents or new technology, or even management superiority, are difficult to capture in a contract  If a firm gives up these assets through licensing, may risk basis of its comparative advantage – no longer able to extract “rents” or “pure profits” Marxist Views – Stephen Hymer  MIT trained in neoclassical economics  Wrote in the 1960s  Views not accepted by peers – untimely death  Monopoly capitalism driven by two laws 1) law of increasing firm size – as firms grow and develop they expand across national borders and in doing so they create a core – periphery structure and an international division of labor Marxist Views (con’t) 2) Law of uneven development – large size, mobility and monopolistic power means that firms control and exploit the world  Corporate activities mean that firms construct a world composed of wealthy, core economies and the impoverished south  The development of the north and the underdevelopment of the south are integral and complimentary ◦ exist in relationship to each other Regionalism Is Important Most FDI is invested in the same region: Europe (Germany in eastern Europe), Japan in East Asia, US in North American Less risk and less dependence on labor in manufacturing means perhaps cheaper to use trained, skilled, labor Regional production: scale economies, lean management, cultural affinities, less uncertainty, and shipping costs! Issues with MNCs Relations with Developing  Labor standards (wages, hours, union Countries representation, working conditions and child labor)  Environmental practices: race to the bottom?  North-South not the dominant pattern of investment ◦ Only 27% in “developing” countries  Excluding oil exporting and least developed Issues with MNCs Relations with Developed Countries (con’t)  Competition Policy – market power – both at home and abroad ◦ Affecting the price and quantity of inputs and outputs  Tax Avoidance  Who should regulate? ◦ Domestic governments? ◦ Multilateral institutions? ◦ Currently through a patchwork of national, bilateral, regional and multinational agreements – nothing comprehensive at WTO/multilateral level ... exporters in a target market  Export Management Companies: Companies that export products on behalf of indirect exporters  Export Trading Companies: Companies that provide services to indirect exporters... systems 3 .Multinational strategy A strategy of adapting products and their marketing strategies in each national market to suit local preferences • Multinational strategy allows companies to... Advantages of Joint Venture: -Companies rely on joint ventures to reduce risks -Companies can use joint venture to penetrate international markets that are otherwise off-limit -Companies can gain access