1. International Business
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THE MULTINATIONAL
ENTERPRISE

2. DO YOU KNOW?
• Who are the players in the international business
arena?
• How can you tell the degree of a firms
internationalization?
• Will a higher degree of internationalization lead to
higher corporate performance?
• What advantages and disadvantages do MNEs
have when they operate overseas compared to
local firms?
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3. WHAT IS A MULTINATIONAL
ENTERPRISE
The internationally committed company – has at least
one plant or joint venture abroad.
The internationally leaning company – has foreign sales
and/or a representative office and/or a licensing
agreement abroad.
The multidomestic firm – has multiple international
subsidiaries independent of headquarters.
The transactional firm – has subsidiaries that fulfill a variety
of strategic roles typically performed by HQ.
The multinational firm – engages in FDI and owns or
controls value adding activities in more than one
country.
The global firm – has integrated international subsidiaries
controlled by headquarters
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4. WHAT IS A MULTINATIONAL
ENTERPRISE
Multinational Enterprise (MNE) – a firm with
foreign direct investment, service or
manufacturing, over which it maintains
effective control.
International firm – a firm engaged in trade
activities but without an FDI component.
Small and Midsize International Enterprises
(SMIE) – Most of these firms do not have FDI
presence and do not qualify as MNEs
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5. THE DEGREE OF
INTERNATIONALIZATION
• Transnationality Index (TNI) – the level of MNE
internationalization.
• Calculated as the average of three ratios:
• Foreign assets to total assets
• Foreign sales to total sales
• Foreign employment to total employment
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6. THE DEGREE OF
INTERNATIONALIZATION
Exhibit 4-1: Average transnationality of the world’s
100 largest MNEs 1990-1998
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7. HISTORY OF THE MNE
• MNEs can be traced to the Phoenician,
Carthaginian, Greek, and Roman empires
• Date back to Assyria around 2000 B.C.
• Faced the same obstacles as today’s MNEs:
• Tariffs
• Nationalistic opposition to foreign trade and investment
• Using competitive advantage and market power
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8. THE WORLD’S LARGEST MNES
•In 1998, the top 100 non-
financial MNEs accounted for
• 13% of all foreign assets
• 19% of all foreign sales
• 18% of all foreign employment.
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9. THE WORLD’S LARGEST MNES
Exhibit 4-3: Home country of the world’s largest 100
MNEs by TNI and foreign assets
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10. THE WORLD’S LARGEST MNES
Exhibit 4-4: The largest 10 U.S. MNEs (at the end of
1999)
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11. THE INDUSTRY COMPOSITION OF
MNES
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Exhibit 4-5:
Industry
composition of
the largest 100
MNEs
Dominated by a
limited number
of industries.

12. THE INDUSTRY COMPOSITION OF
MNES
Exhibit 4-6: The largest 5 MNEs in each industry
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13. THE GROWTH OF SERVICE MNES
• There has been significant growth of MNEs in service
areas, due to:
• Economic transformation – developed nations shifting into
service economies
• Globalization and liberalization of regulatory systems –
“open skies” agreements, accounting standards, flexible
store hours, etc.
• Communication advances – allow MNEs to coordinate
knowledge-intensive operations across borders.
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14. THE GROWTH OF SERVICE MNES
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Exhibit 4-7: The world’s
top 20 banks 2001
(based on total assets)
Note the U.S.

15. THE GROWTH OF SERVICE MNES
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Exhibit 4-8: The world’s top
airlines, 2001

16. THE MNE IN THE PUBLIC EYE
• The MNE has been both lauded and vilified for its
impact on host and home countries.
• Among the more positive attributes are:
• MNEs provide knowledge, capital, technology, expertise,
global affiliations, contributions to national productivity and
exports, innovation, employment, and societal change.
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17. THE MNE IN THE PUBLIC EYE
• Among the negative attributes are:
• the MNE is perceived as a threat to national
sovereignty
• have unfair advantages over local competition
• exploit government incentives at the expense of
taxpayers
• limit knowledge transfer to developing nations
• exploit critical national and natural resources
• move on when their exploitation is finished
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18. THE COMPETITIVE ADVANTAGE OF
THE MNE
• The MNE generally has large capital, human, brand,
and technological resource base, it can use many
countries.
• Global spread provides MNEs with:
• diversification so they can compensate for SBU low
performance and uncertainty
• helps them overcome entry barriers and high start up costs.
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19. MNE’S CAPABILITIES
• MNE Capabilities
• Firm capabilities
• Familiarity with national culture, industrial structure, and
government requirements
• Existing relationships with customers, suppliers, regulators
• Strategic capabilities
• Technological assets (patents, trade secrets, proprietary
designs, product development)
• Managerial skills
• International experience
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20. MNE’S CAPABILITIES
• Capability Deployment
• MNE’s must transfer critical capabilities unavailable to local
players.
• Technological and financial capabilities are more
transferable than organizational skills.
• Capability Upgrading
• Learning capability – the capacity to generate ideas and
acquire new knowledge.
• More transferable than firm resources.
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21. THE MNE FROM EMERGING /
DEVELOPING ECONOMIES (DMNE)
• MNEs from developed nations typically dominate
global business.
• DMNEs, however, are making inroads.
• DMNEs face the following constraints and
advantages:
• Resource constraints.
• Knowledge, sophistication constraints.
• Sheltered environment constraints.
• Home government support.
• Flexibility
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22. THE LARGEST DEVELOPING
COUNTRY MNES
• DMNE Scale
• Median DFI holding for a top 50 DMNE in 1998 was $1.5
billion, versus $14 billion for a global 100.
• DMNE Industries
• Largest group consists of diversified firms
• Electronics, petroleum, and food/beverage
• The National Affiliation of DMNEs
• Dominated by South, Southeast, and East Asia
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23. THE LARGEST DEVELOPING
COUNTRY MNES
Exhibit 4-10: Global expansion of Cemex SA 2001
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24. THE LARGEST DEVELOPING
COUNTRY MNES
Exhibit 4-11: Industry composition of the largest 50
MNEs from developing countries
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25. THE LARGEST DEVELOPING
COUNTRY MNES
Exhibit 4-12: Country composition of the largest 50
MNEs from developing economies
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26. OBSTACLES FACING MNES FROM
DEVELOPING ECONOMIES
• Resource Constraints
• Capital investment, lack of reputation, brand recognition
• Lack of Knowledge
• Experience in foreign operations, lack of production,
marketing and management skills
• Sheltered Environment
• Protected by duties, lack of knowledge and expertise from
conducting international business
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27. DMNE ADVANTAGE IN GLOBAL
MARKETS
• Home Government Support
• Impact of the DMNE on the national economy
• Shields the firm from the marketplace, hampering its
capability development
• Flexibility
• Lower production scale permits flexibility and adaptation
• Less investment sunk in older plants and technologies
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28. TYPICAL FEATURES OF DMNES
Internationalization Patterns
To develop ownership advantages
To serve as intermediaries
To overcome import quotas in developed
markets
To reduce risk via diversification
Focus on Other Developing Markets
More likely to have greater share of FDI in other
developing markets.
Reliance on Third Parties
To compensate for resource shortages
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29. TYPICAL FEATURES OF DMNES
• Governance
• Less likely to be publicly traded, and tightly controlled
• Industry Domain
• More likely to be in manufacturing
• Bargaining Power
• Lack bargaining power in the host country
• Strategy
• More likely to compete on price than on product
differentiation
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30. WHAT IS AN SMIE?
• The SMIE is a “small to medium sized organization”
• SMIEs account for approximately 94% of all
international firms.
• They often face serious obstacles to
internationalization.
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31. WHAT IS AN SMIE?
Exhibit 4-14: Small companies can be international
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32. OBSTACLES TO SMIE
INTERNATIONALIZATION
• Scale and Transaction Constraints
• Access to Capital
• Lack of Knowledge
• Lack of Market Power
• Vulnerability to Intellectual Property Violations
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33. OBSTACLES TO SMIE
INTERNATIONALIZATION
Exhibit 4-15: Entry barriers to international trade for
Minnesota SMIEs
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34. SMIE INTERNATIONALIZATION
FEATURES
• International Motivation
• Push factors – competitive pressures in its domestic market
• Pull factors – make foreign locations more attractive
• Management factors – managerial commitment and
resources devoted to international activity
• Chance factors – unforeseen circumstances that create
internationalization opportunities
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35. SMIE INTERNATIONALIZATION
FEATURES
• Internationalization Patterns
• Often not incremental, often “leapfrog” into international
markets
• SMNE Exporter Profile
• 97% of U.S. exporters are small businesses
• Exporter Demographics
• SMIE Foreign Investment Profile
• At present relatively small, but growing
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36. SMIE INTERNATIONALIZATION
FEATURES
• Chance Expansion
• SMIEs respond to incidental opportunity
• Nature of FDI by SMIEs
• Emphasis on Developed Markets
• More likely to invest in developed markets
• Selective Globalization
• Tend to focus on one link in the supply chain and on a selected
market
• Strategy
• Often adopt niche strategies
• Rely more on cooperative strategies
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37. BORN INTERNATIONAL
• A business organization that from inception seeks
competitive advantages from the use of resources
and sale of output in multiple countries.
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