Internationalization Models

Ch 1 – The Multinational
Enterprise: nature and origin

Juan Antonio Gil Serra

([email protected])
What is a Multinational Enterprise (MNE)?

“Is an Enterprise that enagages in FDI “Investment that involves a long-term relationship
and owns or, in someway, controls reflecting a lasting interest of a resident entity in one
value-added activities in more than economy (direct investor) in an entity resident in a
one country” economy other than that of the investor. The direct
(Dunningand Lundan, 2008) investor’s purpose is to exert a significant degree of
influence on the Management of the Enterprise resident
in the other economy (≥10%)”
(IMF definition)
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How can we extend the boundaries of a company?

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How can we extend the boundaries of a company?

The Ansoff Product/Market Growth Matrix

Markets
Existing New Vertical
Integration

Market Market
Existing Business
penetration development
Diversification
Products
Product Conglomerate
New Geographical
development Diversification
Expansion
• Domestic
• International

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The logic of internationalization

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Internationalization: the example of Telefónica

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Internationalization: the example of Ferrovial

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Examples / Cases: Inside Shake

Inside Shake Shack’s

unusual global strategy
https://edition.cnn.com/2019/06/18/business/shake-shack-mexico-city/index.html

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Examples / Cases: Inside Shake

Inside Shake Shack’s

unusual global strategy

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Examples / Cases: Inside Shake

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Examples / Cases: Inside Shake

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Main motives for international expansion

?
Global Expansion and Profits

Why do firms go global?

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Main motives for international expansion

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Main motives for international expansion

?
Global Expansion and Profits

Why do firms go global?

1. To expand the market for their domestic product offerings by selling them in
international markets, leveraging products and competencies

P&G’s core competency in marketing is

evidenced in this photo of Olay men’s skin
care products for sale in a Shanghai, China,
supermarket.
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Main motives for international expansion

?
Global Expansion and Profits

Why do firms go global?

2. To realize location economies dispersing value creation activities to locations

where can be performed most efficiently
> Under this strategy, different stages of the value chain are dispersed to those locations
around the globe where perceived value is maximized or where the costs of value creation
are minimized
- Introducing transportation costs and trade barriers complicates this picture
- Political and economic risks must be assessed when making location decisions

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Main motives for international expansion

?
Global Expansion and Profits

Why do firms go global?

3. To realize cost economies from experience effects by serving an expanded global market
from a central location

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Source: C. W. L. Hill and G. T. M. Hult, International Business: Competing in the Global Marketplace (New York: McGraw-Hill Education, 2017).
Main motives for international expansion

?
Global Expansion and Profits

Why do firms go global?

4. To earn a greater return by leveraging valuable skills developed in foreign

operations and transferring them to other entities within the firm’s global network
of operations
– Recognize that valuable skills can be developed anywhere within the firm’s
global network (not just at the corporate center)
– Use incentive systems to encourage local employees to acquire new skills
– Develop a process to identify when new skills have been created
– Act as facilitators to transfer valuable skills within the firm
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Case/example: Chinese firms investing in developed countries

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Case/example: Chinese firms investing in developed countries
https://www.ft.com/content/06ca5209-d9a2-4edc-b0cc-edd21850632e

19
Main motives for international expansion
Global Expansion and Profits

? Why do firms go global?

1. To expand the market for their domestic product offerings by selling them
in international markets
2. To realize location economies dispersing value creation activities to
locations where can be performed most efficiently
3. To realize cost economies from experience effects by serving an
expanded global market from a central location
4. To earn a greater return by leveraging valuable skills developed in
foreign operations and transferring them to other entities within the firm’s
global network of operations

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Other motives at different levels…

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Country factors

Related to
threats in the
home country
and/or
opportunities
in the host
country

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Industry factors

Progressive
increase in
the degree of
internatio-
nalization of
the industries

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Firm factors

To keep or
improve the
competitive
advantage of
the firm

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Main motivations and drivers: George Yip
MARKET
FACTORS

• Similar Customer needs

• Global demands, global
customers • Free trade policies and regulations
• Transferable marketing • Technical standards
• Host government policies

COST GLOBA- POLITICAL

FACTORS LIZATION FACTORS

• Global economies of scale

• Differences among countries
• Lower transport costs, • Economic interdependences
favourable logistics between countries
• Globalization of competition

COMPETITIVE
FACTORS 25
Source: George Yip´s globalization framework
Stages model / process model (Uppsala Model, Johanson/Vahlene)

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Psychic Distance Chain

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Establishment chain and learning

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Establishment chain

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Establishment chain
Multinationalization
High
Internationalization
Commitmen in foreign
markets (resources and
risk, control and potential
benefits) Exporting

Low

Stage Stage 1 Stage 2 Stage 3

0 Beginning Develop- Consoli-
ment dation

Occasional Exporting Exporting

Exporting Sales Subs. Alliances
Alliances FDI,
Acquisitions
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Source: J. Canals (1994) p. 105.
Establishment chain and learning

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Stages model generally useful for explaining (small) firms first
internationalization steps

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Entry timing: Waterfall vs Sprinkler strategy

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Born Globals

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Entering new markets: different approaches

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Fuente: Guillén y García Canal (2010)
Internationalization Models
Ch 1 – The Multinational
Enterprise: nature and origin

Juan Antonio Gil Serra

([email protected])