1. Welcome to class of Evolving Multinationals Dr
Welcome to class of Evolving Multinationals Dr. Satyendra Singh Professor, Marketing and International Business University of Winnipeg Canada

2. Objective Identical Role of Subsidiaries
Traditional
Affiliate CEO ≈ Parent CEO
Affiliates do what parents do
Internally Differentiated Form
Different capabilities from different affiliate
Optimize its worldwide operation
Gain efficiency – Global structure
Achieve network flexibility
Develop capability  Evolve

3. Dimensions of Evolution
Geographic Expansion
Geographic proximity
Cultural similarity
Similarity in economic development
Line of Business Diversification
Liability of foreignness
Functional Migration

4. Geographic Expansion Geographic Proximity Cultural Similarity
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

5. Example – Geographic Expansion
HO: USA (Colgate-Pamolive)
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…

6. Line of Business Diversification
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 adv
Learn from IJV/acquisition from superior partner
Time
Competitive advantage versus local firms
LOB 1
LOB 2
LOB 3
LOB 4
Liability of foreignness

7. Example – Line of Business
HO: Japan (SONY)
Enter US with TV
Enjoy competitive position over US
Good profit  justifies greenfield 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

8. Functional Migration
Development of activities performed by lines of business 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
 worldwide

9. Example – Functional Migration
HO: Japan (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

10. MNC Evolution – Integrated Process
Accelerated Evolution
MNC evolves along all the dimensions at the same time
Punctuated Evolution
Discontinuous  skips steps  no duplication
Share functions
b/w existing LOB  Finance, legal…
Across countries within a single LOB  R&D, Mrf  Common in trading blocks  EU, NAFTA…
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