Public Enterprise Management Ch19. Global management – multinational companies, entry strategie...
1. Drivers of Globalization
Globalization: A phenomenon where the integration of trade, investment, culture, and technology across countries intensifies.
Four Drivers of Globalization (Yip)
| Driver | Content |
|---|---|
| Market Drivers | Consumer homogenization, increase in global customers |
| Cost Drivers | Economies of scale, low-wage production locations |
| Government Drivers | Tariff removal, intellectual property treaties |
| Competitive Drivers | Emergence of global competitors, first-mover pressure |
2. Foreign Entry Strategies
Relationship Between Entry Modes and Control, Risk, and Return
| Mode | Control | Risk | Resource Commitment |
|---|---|---|---|
| Exporting | Low | Low | Low |
| Licensing | Low | Low | Low |
| Franchising | Moderate | Low | Moderate |
| Joint Venture (JV) | Moderate | Moderate | Moderate |
| Strategic Alliance | Moderate | Moderate | Moderate |
| Wholly Owned Subsidiary (WOS) | High | High | High |
| Merger & Acquisition (M&A) | High | High | Very High |
Greenfield Investment: Establishing a new factory or office locally (Long time, High control). Brownfield Investment: Acquiring and renovating existing facilities (Short time, Hidden liability risk).
3. Multinational Enterprise Theories
Eclectic Paradigm (OLI Paradigm, Dunning)
Explains the reasons why firms choose foreign direct investment (FDI) through three advantages.
| Advantage | Content |
|---|---|
| O (Ownership) Advantage | Firm-specific assets such as brands, technology, and managerial know-how |
| L (Location) Advantage | Access to local cheap labor, resources, and markets |
| I (Internalization) Advantage | Direct operation is more advantageous than contracting (preventing technology leakage) |
Types of Global Strategies (Bartlett & Ghoshal)
| Strategy | Global Integration | Local Responsiveness |
|---|---|---|
| Global Strategy | High | Low (Standardization) |
| Multidomestic Strategy | Low | High (Localization) |
| International Strategy | Low | Low (Home-country centered) |
| Transnational Strategy | High | High (Balanced) |
4. Managing Cultural Differences
Hofstede’s Cultural Dimensions (6 Types)
| Dimension | Content |
|---|---|
| Power Distance | Degree of acceptance of power inequality |
| Uncertainty Avoidance | Degree of anxiety regarding uncertainty |
| Individualism vs. Collectivism | Individual vs. collective identity |
| Masculinity vs. Femininity | Performance/competition vs. quality of life/cooperation |
| Long-term vs. Short-term Orientation | Future investment vs. current tradition |
| Indulgence vs. Restraint | Degree of permissiveness in satisfying desires |
Culture Shock U-Curve
Local adaptation through 4 stages: Honeymoon → Distress → Adjustment → Integration.
Cultural Management Strategies
- Ethnocentrism (Home-country orientation): Transplanting home culture and practices as they are
- Polycentrism (Host-country orientation): Autonomous operations in each country
- Geocentrism (Global integration): Sharing best practices globally
5. Exchange Rates and Global Finance
Types of Exchange Rate Risk
| Type | Content |
|---|---|
| Transaction Risk | Exchange rate fluctuations during settlement of foreign currency contracts |
| Translation Risk | Exchange rate differences when consolidating financial statements |
| Economic Risk | Impact of exchange rates on long-term competitiveness |
Hedging Instruments
- Forward Contract: Fixing future exchange rates
- Currency Swap: Exchanging interest and principal between two currencies
- Currency Option: Protection against unfavorable exchange rate movements
6. Global Supply Chain and Trade
Comparative Advantage (Ricardo): Mutual benefits arise when countries specialize in what they do relatively best.
National Diamond Model (Porter): Four determinants of national competitive advantage.
- Factor Conditions (Quality and quantity of production factors)
- Demand Conditions (Quality of the domestic market)
- Related and Supporting Industries (Competitiveness of suppliers and related industries)
- Firm Strategy, Structure, and Rivalry
Core Summary (Frequently Tested Keywords)
| Keyword | Connected Theory |
|---|---|
| OLI Paradigm | Dunning, explains FDI |
| Bartlett & Ghoshal | Global, Multidomestic, Transnational |
| Hofstede | 6 Cultural Dimensions |
| U-Curve | 4 Stages of Culture Shock |
| Porter’s Diamond | 4 Determinants of National Competitive Advantage |
| Transaction, Translation, and Economic Risk | 3 Types of Exchange Rate Risk |
Oiyo
Editorial DeskThe OIYO editorial desk researches money, law, lifestyle, and self-understanding topics against primary sources and public statistics. Every piece carries source notes and is reviewed on a regular cycle for accuracy and usefulness.