Slide 1.1
Chapter 1
Regional and global strategy
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.2
Introduction
• International business: the study of
transactions taking place across national borders
for the purpose of satisfying the needs of
individuals and organizations.
• Multinational enterprises (MNEs): a company
headquartered in one country but having
operations in other countries.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.3
MNE activity
• Most MNE activity can be classified into two major
categories:
(1) Trade (exports and imports): More than 50%
of all trade is made by the world’s largest 500
MNEs.
(2) Foreign direct investment (FDI): 80% of all
FDI is made by the world’s largest 500 MNEs.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.4
Trade and investment
• Trade consists of exports and imports:
– Exports: goods and services produced in one
country and then sent to another country.
– Imports: goods and services produced in one
country and bought in another country.
• Foreign Investment: consists of companies
investing funds to start or improve operations in
another country.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.5
The triad
• Most global transactions take place within and
between three key regions: the United States, the
European Union and Japan; these are referred to
as: the ‘triad’.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.6
The triad: the United States (US)
• The US has the largest economy in the world with
a GDP of over $10 trillion.
• The US is part of the North American Free Trade
Agreement (NAFTA) with Canada and Mexico.
• The US economy is significantly larger than that
of its two trading partners and is therefore a triad
member on its own.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.7
The triad: the European Union (EU)
• The EU (or EU27) is composed of the countries in
the EU15 (Austria, Belgium, Denmark, Finland,
Germany, Greece, France, Ireland, Italy,
Luxembourg, the Netherlands, Portugal, Spain,
Sweden, and the UK) and twelve new, mainly
Central European, countries that joined in 2004
and 2007.
• The collective GDP of the EU is greater than that
of the US and Japan.
• The EU27 is the world’s largest importer and
exporter.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.8
The triad: Japan
• Japan is the largest economy in Asia.
• Japan is the 4th largest importer and 4th largest
exporter in the world.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.9
Today’s international environment
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.10
International business environment
• The international business environment has
changed rapidly in recent years as a result of:
– an overall slowdown of triad economies;
– increased trade liberalization through trade
agreements;
– improvements in technology;
– the emergence of SMEs.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.11
Slowdown of triad economies
• In the late 1990s and early 2000s, the United
States, the EU and Japan all experienced a
reduction in economic activity, which in turn
decreased international business activity.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.12
International trade regulation
• An important international business trend has
been the emergence of regional and global trade
and investment liberalization and international
regulation.
– The World Trade Organization (WTO).
– General Agreement on Tariffs and Trade (GATT).
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.13
The world trade organization
• Established on January 1, 1995.
• An international organization that deals with rules
of trade among member countries.
• Enforces the provisions of the General Agreement
on Tariffs and Trade (GATT).
• Acts as a dispute-settlement mechanism.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.14
The general agreement
on tariffs and trade (GATT)
• Established in 1947 to liberalize trade and to
negotiate trade concessions among member
countries.
• Today, the WTO is enforcing the provisions of the
GATT.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.15
Improved technology
• More powerful and affordable technology has
promoted fast easy worldwide communication
and improved production capabilities enabling
organizations to operate more effectively in the
international marketplace.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.16
Small and medium-sized
enterprises (SMEs)
• The definition of SMEs varies according to the
nation. In general, it refers to companies with
between 11 and 500 employees with sales of less
than $5 million.
• MNEs often purchase from SMEs. This is
because their specialized workforces, innovation
and technology allows SMEs to provide goods
and services more efficiently than if the MNE were
to source these internally.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.17
Globalization and strategic
management
Regional triad strategies
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.18
Misconceptions about MNEs
Common misconceptions about MNEs:
– MNEs have far-flung operations or earn most of
their revenues overseas.
– MNEs are globally monolithic and excessively
powerful in political terms.
– MNEs produce homogeneous products for the
world market and through their efficient techniques
are able to dominate local markets everywhere.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.19
Misconceptions about MNEs
(Continued)
In fact,
– MNEs earn most of their revenues in their home
regions.
– The largest 500 MNEs are not spread around the
world but clustered around the triad.
– These MNEs engage not in global competition but
in triad/regional competition; this rivalry effectively
eliminates enduring political advantage.
– MNEs adapt their products for the local market.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.20
Chapter 2
The Multinational enterprise (MNE)
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.21
The Multinational enterprise (MNE)
• Objectives
• The nature of multinational enterprises
• Strategic management and multinational
enterprises
• A framework for global strategies: the FSA/CSA
matrix.
• It’s regional, not flat.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.22
Objectives
•
•
•
•
•
Describe the characteristics of MNEs.
Explain the internationalization process.
Explain why firms become MNEs.
Discuss the strategic philosophy of these firms.
Introduce a country/firm framework for examining
a firm’s competitiveness.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.23
The Multinational enterprise (MNE)
• A company headquartered in one country but with
operations in one or more other countries.
• MNEs often downplay the fact that they are
foreign-held.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.24
The nature of MNEs
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.25
Table 2.1
The world’s largest 500 multinational enterprises, 2007
Source: Authors’ calculations and adapted from Fortune, The Global 500, July 23, 2007
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.26
Characteristics of MNES
• Affiliates must be responsive to a number of
important environmental forces, including
competitors, customers, suppliers, financial
institutions, and government.
• Draw on a common pool of resources, including
assets, patents, trademarks, information, and
human resources.
• Affiliates and business partners are linked
together by a common strategic vision.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.27
Figure 2.1
The multinational enterprise and its environment
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.28
The internationalization process
• Internationalization: The process by which a
company enters a foreign market.
• Not all international business is done by MNEs.
Indeed, setting up a wholly-owned subsidiary is
usually the last stage of doing business abroad.
• Why do businesses wait to set up wholly-owned
subsidiaries?
– Foreign markets are risky.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.29
A typical internationalization process
• Initially, the firm might license patents, trademarks or
technology to a foreign company in exchange for a fee or
royalty.
• The firm sees a potential for extra sales by exporting and
uses a local agent or distributor to enter a foreign market.
• The firm may use exporting as a “vent” for its surplus
production and might have no long-term commitment to
the international market.
• As exports become more important, the MNE will set up
an office for its sales representative or a sales subsidiary.
• The firm might set up local packaging and/or assembly
operations.
• Finally, the firm will set up a wholly-owned subsidiary
(FDI).
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.30
Figure 2.2
Entry into foreign markets: the internationalization process
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.31
Why do firms become MNEs?
• to diversify themselves against the risks and
uncertainties of the domestic business cycle;
• to tap the growing world market for goods and
services;
• in response to foreign competition;
• to reduce costs;
• to overcome barriers to entry into foreign markets;
• to take advantage of technological expertise by
manufacturing goods directly.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.32
The strategic philosophy of MNEs
• MNEs make decisions based on what is best for
the overall company, even if this means
transferring jobs to other countries and cutting
back the local workforce.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.33
Table 2.2
The international expansion of four MNEs
Source: United Nations, World Investment Report 2001 (Geneva: United Nations Conference on Trade and Development, 2001)
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.34
Strategic management and MNEs
• The strategic management process involves four
major functions: strategy formulation, strategy
implementation, evaluation, and the control of
operations.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.35
Figure 2.3
The strategic management process in action
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.36
Basic mission
• The following questions must be answered to
determine the firm’s basic mission:
– What is the firm’s business?
– What is the reason for its existence?
For example,
• Royal Dutch/Shell; BP Amoco and Texaco are in the
energy business, not the oil business.
• AT&T, Sprint and MCI are in the communications
business, not the telephone business.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.37
Analysis of the external and
internal environment
• The goal of external environmental analysis is to
identify opportunities and threats that will need to
be addressed.
• The purpose of an internal environmental analysis
is to evaluate the company’s financial and
personnel strengths and weaknesses.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.38
Formulation of objectives
and overall plan
• Internal and external analyses will help identify
long-term (2–5 years) and short-term (< 2 years)
goals.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.39
The implementation process
• Once goals have been established, the plan is
then broken into major parts and each affiliate
and department is assigned goals and
responsibilities.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.40
Evaluation and control of operations
• Progress is periodically evaluated and changes
are made in the plan to accommodate changing
circumstances and new information.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.41
Framework for global strategies:
the FSA/CSA matrix
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.42
Building blocks in
our international business
• There are two basic building blocks in an
international business course.
– Firm-specific advantages (FSAs): a unique
capability proprietary to the organization
 It may be built upon product or process technology,
marketing or distributional skills.
– Country-specific advantages (CSAs): country
factors
 Natural resource endowments (minerals, energy
and forests), the labour force and associated
cultural factors, etc.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.43
Figure 2.4
The basic components of international business
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.44
Figure 2.5
The FSA-CSA matrix
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.45
The competitive advantage matrix
• Quadrant 1: resource-based and/or mature,
globally-oriented firms producing a commoditytype product  cost leadership (Improving FSA
can make them move to quadrant 3.)
• Quadrant 2: inefficient, floundering firms  no
alternative but to exit or to restructure
• Quadrant 3: follow any of the generic strategies
 both cost leadership & differentiation
• Quadrant 4: differentiated firms with strong FSAs
in marketing and customization 
differentiation (the CSA is not relevant)
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.46
It’s regional, not flat
• The world is flat by Thomas Friedman, the New
York Times journalist.
– Today, a large proportion of international business
takes place through offshoring leading to globalization.
• The world is not flat!
– There remain strong barriers as a business attempts to
cross the boundaries of triad regions.
– The liability of inter-regional foreignness.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.47
CULTURE
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.48
What is Culture?
Integrated system of learned
behavior patterns that are
characteristic of the members
of any given society.
Context Orientation in Major
Cultures
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.49
Introduction
• Culture: “the sum total of the beliefs, rules,
techniques, institutions and artifacts that
characterize human populations” or “the collective
programming of the mind”.
• Socialization Process: The process of
enculturation or the adoption of the behaviour
patterns of the surrounding culture.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.50
Table 5.1
World population percentages in terms of home region,
Sources: www.census.gov; www.adherents.com
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.51
Language
• Language is critical to culture because it is the
primary means used to transmit information and
ideas.
• Knowledge of local language can:
– permit a clearer understanding of a situation;
– provide access to local people;
– allows the person to pick up nuances, implied
meanings, and other information that is not stated
outright.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.52
Religion
• Religions influence lifestyles, beliefs, values and
attitudes and can have a dramatic effect on the
way people in a society act toward each other and
towards those in other societies.
• Religion also influences:
– the work habits of people;
– the work and social customs (from the days of the
week on which people work to their dietary habits);
– politics and business.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.53
Values and attitudes
• Values: basic convictions that people have
regarding what is right and wrong, good and bad,
important and unimportant.
• Attitude: a persistent tendency to feel and
behave in a particular way toward some object.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.54
Customs and manners
• Customs: common or established practices.
• Manners: behaviour regarded as appropriate in a
particular society.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.55
The importance of culture
in different business contexts
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.56
Influences of culture
on international management
Culture influences strategic management in a
number of ways:
• Work attitudes
– for example, work ethics, organization commitment,
etc.
• Achievement motivation
– the desire to accomplish objectives and achieve
success.
• Time and future
– for example: punctuality, decision-making time
constraints, time expectations on implementation
of plans, etc.
• Ethics
– standards of conduct and morality.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.57
Geert Hofstede’s four cultural dimensions
• Power distance: measures the degree to which
less powerful members of organizations and
institutions accept the fact that power is not
distributed equally.
• Uncertainty avoidance: measures the extent to
which people feel threatened by ambiguous
situations and have created institutions and
beliefs for minimizing or avoiding those
uncertainties.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.58
Geert Hofstede’s four cultural
dimensions (Continued)
• Individualism vs. collectivism
– Individualism: the tendency of people to look after
themselves and their immediate family only.
– Collectivism: the tendency of people to belong to
groups who look after each other in exchange for
loyalty.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.59
Geert Hofstede’s four cultural
dimensions (Continued)
• Masculinity vs. femininity
– Masculinity: the degree to which the dominant
values of a society are success, money and
material goods.
– Femininity: the degree to which the dominant
values of a society are caring for others and the
quality of life.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.60
Hofstede’s power distance against individualism for
20 countries
Figure 5.2
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Source: Hofstede, G. (1983). The cultural relativity of organizational practices and theories, Journal of International Business Studies, Fall, p. 92. Copyright © Geert Hofstede
Slide 1.61
Elements of Culture
CONCRETE ELEMENTS
ABSTRACT ELEMENTS
•Language
Verbal
Nonverbal
•Religion
•Infrastructure
•Education
•Values and attitudes
•Manners and customs
•Aesthetics
•Social Institutions
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.62
Understanding Cultural Differences
Four Dimensions of
Culture
• Individualism
• Power distance
• Uncertainty avoidance
• Masculinity
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.63
Societal and Institutional Differences
Aspects
China
United
States
Ethnic Culture
Source of Trust
•Centered around
"relationships"
•"Reclusive", each
minding his/her own
business (especially
with "strangers" and
people outside of the
relationship network)
•Centered around
"individuals"
•"Messianic": "let's
save the world"
Trust those around
you; don't "lose face"
and credibility by
failing to live up to
written or oral
agreements
Trust the contract;
don't get into legal
hassles by not fulfilling
the agreement
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.64
Business Culture
Quiet and reserved;
clumsy
communicators
Outspoken; eloquent;
effective
communicators
Negotiation Style
Group decision; final
say by the "boss"
More individual
authority and
distributed decision
making
Dealing with
Business
Counterparts
Indirect; courteous;
take things
personally; long
memory for both
favors and
humiliations
Direct; more matterof-factly; memory for
conflict superceded
by business objective
Ability to Make
Immediate
Response
Weak
Strong
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.65
Aspects
China
United
States
Interpersonal
"Relationship" comes first
"Economics" comes first
On "Humility"
"Humility" viewed as a virtue
"Humility" is a sign of weakness;
there is every reason for the abled
to be proud
Time Horizon
Accountable by the generation
(~30 years)
Accountable by the quarter (~3
months)
What Commands Respect
Respect for seniority, wisdom,
ability
Respect for success,
achievement, wealth
On "Family"
Children should learn to respect
the elder, love the young, and rely
on the "extended family"
Children should learn to be
independent
On "the Strong" and "the Weak" It is not righteous to bully
It is an honor to win; business is all
a competition; it is only natural that
the weak is preyed on by the
strong
Discipline (in following
procedures and schedules)
Strong
Depends on the individual
Tolerance of Diversity /
Openness to Alternative
(possibly opposing) Ideas
Openly - very receptive; but
actually, less so
More open
Shame or Humiliation
Long memory;
need
urge toInternational
Tends
to5 be
superceded
by Limited 2009
Alan M Rugman
and and
Simon Collinson,
Business,
Edition,
© Pearson Education
th
Slide 1.66
JAPAN
Culture and firms’ analysis
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.67
Social and cultural
characteristics
• Collectivism rather than individualism, dominates many
aspects of Japanese life.
• Within companies certain characteristics have strong
religious roots, including honour, respect, sincerity,
loyalty (chu), duty, obligation or responsibility (giri), ritual
and hierarchy.
• Parent–child relationships characterise the hierarchical
nature of inter-organizational and interpersonal links, such
as government–industry, large firm–small firm, manager–
employee, etc.
• Respect for elders, ritualistic (highly-complex)
language forms and behaviour, group activities and
consensus decision making are all important elements.
• These contrast individualism and meritocratic forms
of organization and tend overall to unify the Japanese in
their response to gaijin (or outsiders).
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.68
Hai ≠ Yes
• Hai can mean one of at least four levels of yes:
– recognition, but not necessarily understanding;
– understanding, but not necessarily acceptance and
agreement;
– responsibility, understanding, but must consult with
others and secure their agreement before
acceptance; and
– agreement, which means understanding,
agreement and acceptance.
• The non-verbal signals from the speaker have to
be understood to determine, which yes is being
meant.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.69
Keiretsu
• The renowned Japanese corporate groupings or
keiretsu, characterised by cross-shareholdings
and regular meetings between executives,
represent more or less closely tied groups of
integrated businesses.
• There are broadly two types of keiretsu, the
horizontal (kinyu) type and the vertical,
manufacturing keiretsu.
• In the early 1980’s the top six keiretsu alone
directly accounted for about 5% of the Japanese
labour force and 16% of total Japanese corporate
sales.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.70
Distribution, retailing
and customer-orientation
• Associated with the keiretsu industry groupings
are multi layered distribution and retail networks
in Japan.
• This “tied” system of distribution, bound by
strong face-to-face ties between sellers and
buyers at each level, adds substantial costs to the
final product.
• Many elements of this complex distribution
system remain in Japan today. The multi tiered
distribution hierarchy has become more
simplified, however, driven by the growth in
discount stores and cost-reduction measures.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.71
Characteristics of
Japanese management
• We can distil some of the main characteristics of
the generic Japanese management style as:
– Effective communications internally and with
outside firms, and the use of cross-disciplinary,
cross-business and cross-functional workshops.
– Less separation of R&D, design, manufacturing
and marketing functions.
– Life-time employment, low labour mobility and
substantial investments in training. There is
also a strong emphasis on training on-the-job and
job-rotation within the firm.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.72
Characteristics of
Japanese management (Continued)
– Strict formal hierarchy combined with strong
underlying informal networks and a tendency
towards consensus-based decision making
(‘horizontal promotion’ for high-fliers and a lack of
outsiders entering the firm at senior levels).
– General “long-termism” with a focus on growth
and employment stability and market share rather
than profits and shareholder dividends.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.73
Kaisha (“company”)
• Abegglen and Stalk (1985) sum up some of the
distinctive characteristics of Japan as the ‘‘3 Ms’’.
– marketing: direct links with consumers via
retailers and wholesalers and strong customer-led
product development;
– money: cross-shareholding and the lack of
outside pressure for short-term returns and stock
price improvements;
– manpower strategy: worker involvement, loyalty,
effective team-working, and devolvement of
responsibility combined with hierarchy.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.74
Chapter 19
Emerging economies
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.75
Introduction
• Emerging market countries are:
– Growing in importance for international managers
for both market-seeking investments and resourceseeking investment.
– Strongly government-controlled, in that government
agencies play a central role in negotiating with
foreign investors and deciding the local rules of the
game.
– Less predictable and riskier than triad markets,
which investors often underestimate in their pursuit
of the high level of rewards on offer.
– The source of new competitors, as local firms
move up the value-chain, becoming more
sophisticated and more international.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.76
Types of international expansion
• There are two types of international expansion
that are important in relation to non-triad firms:
– internationalization from the triad into non-triad
regions;
– the internationalization of newer MNEs from
outside the triad who are looking to access larger
economies.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.77
Triad firms and emerging economy
firms: why the mutual interest?
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.78
Triad firms and emerging economy
firms: why the mutual interest?
• For triad-based MNEs:
– Triad economies are growing slowly relative to
emerging markets both large, like India, China and
Brazil and small, like Poland or Malaysia
– Triad regions also tend to be more expensive, in
terms of labour costs, infrastructure, land,
materials and supporting industries, relative to nontriad regions.
– As a result, there are strong incentives for triadbased firms to:
 sell products, services, and other outputs into these
growing, non-triad markets;
 to source inputs, from cheap labour or manufactured
components to services, from such places.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.79
Triad firms and emerging economy
firms: why the mutual interest? (Continued)
• For non-triad-based MNEs:
– Large, mature markets like the US, the EU and
Japan offer opportunities to sell their products.
– Many firms also look to these countries to fill gaps
in their assets, resources and capabilities, from
technological know-how or specialist components,
to brands.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.80
What is the attraction for triad and non-triad firms investing in each
other’s home regions?
Figure 19.1
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.81
An overview of emerging
economies, by region
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.82
Asia-Pacific and the Middle East
• Receive 22% of global FDI flows, the most of any
non-triad region.
• 90% of FDI is concentrated in only 10 countries.
– China, Hong Kong (China) & Singapore receive the
most FDI.
– The oil rich countries of the Middle East also
experience FDI, but this is almost exclusively
related to their oil industries.
• Many of the countries in the region continue to
liberalize their economies and privatize stateowned assets.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.83
Asia-Pacific and the Middle
East (Continued)
• There are two clear trends that indicate the
dynamism of the Asia region.
– The growth on intra-regional investment,
particularly driven by the regional giants India and
China joining countries like Malaysia, South Korea,
Taiwan and Singapore as active investors.
– FDI in services is growing rapidly and now
represents over 50% of FDI stock in the Asia
region.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.84
MNEs from Asia Pacific
• 36 out of the 50 largest non-financial MNEs from
developing countries listed by UNCTAD are from
the Asia-Pacific region.
– The largest number from any country comes from
Hong Kong (China), for example, Hutchison
Whampoa (Hong Kong)
– Others from the region include Singtel (Singapore);
Petronas (Malaysia); Samsung Electronics (South
Korea); etc.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.85
Central and Eastern Europe
• Despite years of political and economic change,
including liberalization, the Central and Eastern
European region still attracts a relatively small
percentage of global FDI inflows (just over 4%).
• Poland, the Czech Republic and Hungary receive
larger shares of FDI than other countries in the region
but have experienced declines in recent years, as has
the Russian Federation.
• These, plus 5 other CEE countries (Estonia, Latvia,
Lithuania, Slovenia and Slovakia) joined the EU in
May 2004 and all saw FDI inflows shrink recently, but
prospects look better from now on.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.86
MNEs from Central and
Eastern Europe
• The largest MNEs in the CEE region are Russian,
many of them based on the country’s abundant
natural-resources, such as Gazprom, Rosneft and
LuKoil.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.87
Latin America and the Caribbean
• 11% of global FDI went to the Latin America region in
2006.
• The three largest economies of Argentina, Brazil and
Mexico had a difficult decade in terms of economic growth
and recession, which stymied FDI inflows.
• A spate of privatizations during the late 1990s boosted
inward FDI for these and other regional economies and as
this process came to an end, so did the FDI inflows.
• Brazil and Mexico still received the highest amounts of FDI
and, as we would expect, one-third of all FDI into the
region came from the USA.
• Many Latin American countries now face increased
competition for US manufacturing investment from China
and the Asian region.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.88
MNEs from Latin America
• 8 of the 50 largest non-financial MNEs from
developing countries listed by UNCTAD are from
the Latin American region.
– Half of them are based in Mexico.
• Many of the largest are natural resources based.
– These include the largest of all, Cemex (Mexico),
Petrobras (Brazil), Companhia Vale do Rio Doce
(Brazil), Metalurgica Gerdau (Brazil) and Perez
Companc (Argentina).
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.89
Africa
• Less than 4% of total global FDI goes to Africa.
– Resource-rich economies (oil, diamonds, gold and
platinum)
• Home to most of the world’s least-developed
countries (LDCs).
• Africa has always recorded low levels of inward
FDI because of its relative lack of political
instability, weak infrastructure, poor labour skills
and macro-economic fragility.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.90
MNEs from Africa
• Only 5 of the 50 largest non-financial MNEs from
developing countries listed by UNCTAD are from
Africa and they are all South-African.
• Sappi, Sasol, MTN Group and Barloworld are
major players in their respective sectors
throughout the region.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 1.91
Figure 19.6
Firm-specific advantages (FSAs) for the new multinationals
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
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