Welcome!
Evolving Multinationals
Dr. Satyendra Singh
Professor, Marketing & International Business
Conference Chair, ABEM Conference
University of Winnipeg, CANADA
Objectives
Identical role of subsidiaries (NO)
Traditional
Affiliate CEO ≈ Parent CEO
Affiliates do what parents do
Internally differentiated form (YES)
Different capabilities from different affiliate
Optimize its worldwide operation
Gain efficiency – Global structure
Achieve network flexibility
Develop capability 🡪 Evolve
2
Dimensions of evolution
3
① Geographic expansion
Geographic proximity
Cultural similarity
Similarity in economic development
② Line of business diversification
Liability of foreignness
③ Functional migration
① Geographic expansion
4
Geographic proximity
1st enter neighboring country/countries
Sequential move to farther places
Cultural similarity
1st in a country with similar culture (eg language)
↑ effective communications
↑ understanding of local customs and markets
Similarity in economic development
1st 🡪 country similar to home country/PPP
Similar buying habits as home market consumers
Product adaptation is modest
Learn 1st, develop capability, then go diff. country
Case study – Colgate-Pamolive (USA)
5
Geographic expansion
1st Canada 🡪 2nd Mexico 🡪…
Culturally similar 🡪 Anglo-Saxon
1st Australia, NZ, UK…
Modest adaptation – language
Learn 🡪 more culturally different market
Latin America (different language, trade barrier)
Relative importance of the factors
Internet, economic development…
② Line of Business diversification
6
1st add strongest single LOB 🡪 profitable
Profit can offset unfamiliarity of local market
Then add 2nd LOB with less comp adv
Learn how to compete in local environment
Then add with no comp advantage
Learn from IJV/acquisition from superior partner
Time
Competitive advantage versus local firms
LOB 1
LOB 2
LOB 3
LOB 4
Liability of foreignness
Case study – Sony (Japan)
7
Enter US with TV
Enjoy competitive position over USA
Good profit 🡪 justifies green field operation
Then AUDIO, then Magnetic Tape
Took advantage of favorable exchange rate
New LOB, if benefits offset disadvantage in mkt
Then, wished to develop capability in Data Storage System
Began to make acquisitions
③ Functional migration
8
Development LOB activities within a country
Greenfield (demand > supply)
Acquire for vertical integration
Acquisition accelerates functional migration
Marketing and Distribution
🡪 only is not enough 🡪 Good for local knowledge
Assembly
Local Design and Procurement
Business Planning
Strategic
Leadership
Time
Global
Case study – Sony (Japan)
9
Sony enters US with TV
But all manufacturing was in Japan 🡪 SONY wanted
SONY got accused of dumping
SONY made FDI in US 🡪 assembly only
Product and Process knowledge transferred from Japanese exec to US exec
SONY generated resources in US
Began full manufacturing
Plant was monitored initially by Japanese
SONY is not replicating functions abroad, but shifting abroad 🡪 highest being strategic leadership worldwide
Integrated process of MNC evolution
10
Accelerated Evolution
MNC evolves along all the dimensions at the same time
Punctuated Evolution
Discontinuous 🡪 skips steps 🡪 no duplication
Share functions
Skip functions where more efficiently performed
Efficient evolution 🡪 Economies of scale and scope
Reverse Evolution
Restructuring of operations
Consolidation of lines of business and shutting down subsidiaries 🡪 examine multidomestic structure
Questions?�s.singh@uwinnipeg.ca