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Financial Multinational Management Alan Shapiro 7th Edition J.Wiley & Sons Power Points by Joseph F. Greco, Ph.D. California State University, Fullerton 1 CHAPTER 16 CORPORATE STRATEGY AND FOREIGN DIRECT INVESTMENT 2 CHAPTER OVERVIEW: I. THE PROCESS OF OVERSEAS EXPANSION II. THEORY OF THE MULITNATIONAL CORPORATION II. THE STRATEGY OF MULTINATIONAL ENTERPRISE III. DESIGNING A GLOBAL EXPANSION STRATEGY 3 I. THE PROCESS OF OVERSEAS EXPANSION I. METHODS TO GO GLOBAL A. Exporting: preferred market entry strategy 1. Advantages: low cost low risk learning opportunity 4 THE PROCESS OF OVERSEAS EXPANSION 2. Disadvantages inability to realize full sales potential 3. Use of: a. Foreign agents b. Sales subsidiaries c. Distribution system 5 THE PROCESS OF OVERSEAS EXPANSION B. OVERSEAS PRODUCTION 1. Advantages: a. Increased sales b. Supply stability c. Control d. Comprehensive service greater commitment to the local market 6 THE PROCESS OF OVERSEAS EXPANSION 2. Question: create or acquire 3. Acquisition allows speedy transfer of unused parent skills; used more by small firms. 7 THE PROCESS OF OVERSEAS EXPANSION C. LICENSING -local firm agrees to produce for a fee. 1. Advantages: a. Minimum investment b. Faster market entry c. Less risk 8 THE PROCESS OF OVERSEAS EXPANSION 2. Disadvantages of licensing: a. Low cash flow b. Quality standards c. New competitor 9 II. THE THEORY OF THE MULTINATIONAL CORPORATION I. THE OF THEORY THE MULTINATIONAL CORPORATION A. The MNC as an Oligopolist: Why FDI? 1. When is FDI justified? 2. Internalization 3. Market Integration a. Vertical b. Horizontal 10 THE THEORY OF THE MULTINATIONAL CORPORATION B. Financial Market Imperfections 1. Hypothesis 2. Diversification Effect of the MNC 11 III. THE STRATEGY OF THE MNC I. THE STRATEGY OF THE MNC A. Three strategies: 1. That of the Innovation-based MNC 12 THE STRATEGY OF THE MNC Three Strategies (con t) 2. That of the mature MNC a. the importance of economies of scale and b. economies of scope 13 THE STRATEGY OF THE MNC 3. The senescent MNC a. global scanning capability b. the role of rationalization and integration. 14 THE STRATEGY OF THE MNC 4. FDI and Survival a. Cost reduction b. Economies of scale c. Multiple sourcing d. Keeping domestic customers 15 IV. DESIGNING A GLOBAL EXPANSION STRATEGY I. A GLOBAL EXPANSION STRATEGY A. Five Necessary Elements: 1. Awareness of profitable investments -building competitive advantage 2. Selecting a mode of entry -evaluate systematically 16 DESIGNING A GLOBAL EXPANSION STRATEGY A. Five Necessary Elements (con t) 3. Adjusting the Effectiveness of the Entry Mode - continual auditing Using appropriate evaluation 17 4. criteria DESIGNING A GLOBAL EXPANSION STRATEGY 5. Estimating the longevity of competitive advantage: a. Develop competitive strength transferable overseas. b. Not easily duplicated 18

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