PART 2

The Global Firm

1. An
introduction to DEFINITIONS of MNE
multinational
enterprises
1. An
Three stages to become an MNE
introduction to
multinational
enterprises
1. An
Four categories of MNEs
introduction to
multinational
enterprises
1. An
introduction to FOUR CORE FEATURES OF MNES
multinational
enterprises
HIGHLIGHT
FORTUNE GLOBAL
500 COMPANIES
HIGHLIGHT
FORTUNE GLOBAL
500 COMPANIES
HIGHLIGHT
FORTUNE
GLOBAL
500 COMPANIES
 OUTSOURCING / OFFSHORING
2.1
Characteristics
of multinational  home country = headquarters
enterprises
(MNEs)  host countries = operations

 Firm-specific advantages: skills, cheap labor or resources, etc.

Salaries of mid-career level IT staff around the world.
2.2 The
relationship FOREIGN DIRECT INVESTMENT (FDI)
between
MNEs and the
economy
 DEGREE OF OWNERSHIP OF THE PARENT
Affiliates
Associates / Foreign affiliates 10% minority stake
Associates

Subsidiaries Subsidiary or MOFAs majority shareholder > 50%

MOFAs = Majority-Owned Foreign Affiliates

2.2 The HORIZONTAL DIRECT INVESTMENT
relationship
between VERTICAL INVESTMENT
MNEs and the
economy CONGLOMERATE TYPE
  Theories of FDI assuming perfect markets
 The differential rates of return hypothesis

 The portfolio diversification hypothesis

2.2 The
relationship  Market size hypothesis
between  Theories assuming imperfect markets
 The industrial organization theory
MNEs and the
economy  The internalization theory

 The eclectic paradigm

 OLI-MODEL OR OLI-FRAMEWORK

2.2 The  ownership advantage = WHY some firms go abroad

relationship
between
MNEs and the  location advantage = WHERE an MNE chooses to locate
economy
 internalization advantage = HOW a firm chooses to operate
 POSITIVE FORECASTS UNCERTAINTY
2.2 The
relationship  Moderate rise of FDI flows  Brexit
between expected to continue in 2018  US to abandon the Trans-
MNEs and the  accelerating economic Pacific Partnership
growth
economy  US to renegotiate key trade
 strong performance of stock agreements
markets  elections in
World  rebound in world trade  potential tax reform in the
Investment volume US
Report 2017
  Top 500 multinationals
 > 90% of the world’s FDI
 ± half its trade

 MNEs’ business activity takes place within any one of

2.3 The myth of the three great regional blocks the triad
globalization:
the local-global  ± top 500 firms regionally based in their home region of
paradox the triad

 491 firms in these core triad regions in 2008

 160 North American firms
 186 European firms
 145 Asia Pacific firms
 9 non-triad firms
Home-
region
oriented
firms
Bi-regional
firms
Host-region oriented firms
Global firms
2.3 The myth of Top 500 MNEs
globalization: HOME-BASED MNES
the local-global BI-REGIONAL FIRMS
paradox HOST-REGION ORIENTED FIRMS
GLOBAL FIRMS
2.3 The myth of 1999 2008
globalization: the 33% 40.8%
F/T
local-global paradox
Ratio of foreign (F) to total (T) sales

R/T 76.4% 74.6%

Intra-regional (R) sales

Interesting F/T of U.S. firms 23% 30.3%
trends in (178 firms) (142 firms)
international
competitiveness
  North American and Asia Pacific firms foreign sales

 European firms foreign sales

 European firms are more internationalized

2.3 The myth of
 NORTH AMERICA
globalization:
economic downturn + lowered national and home region competitiveness
the local-global firms focus more on a foreign region
paradox  EUROPEAN UNION
enlargement of the EU + rise of the Chinese and Indian economy
EU and Asia Pacific firms focus on their home region

 Large firms have more than 70% of their sales in their home
region.
HIGHLIGHT:
U.S. MNEs
  U.S. MNEs > than 10,000 employees account for
 68.4 % of MNE value added
 75.9 % of MNE employment
 45 % of all U.S. businesses value added in their employment
size class
HIGHLIGHT:
U.S. MNEs  Half of U.S. MNEs = 500 employees maximum

 MNE-associated U.S. exports = 52.4 % of total U.S. exports

 MNE-associated U.S. imports = 41.3 % of total U.S. imports

  U.S. parents > 2/3 and foreign affiliates < 1/3
 worldwide value added
 capital expenditures
 R&D expenditures

HIGHLIGHT:
 U.S. parents = 65.8 % employment
U.S. MNEs
 Most foreign affiliates high-income countries
= 75.9 % of foreign affiliate value added