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i. Here
the
corporate
image
is
often
more
important
than
the
image
created
for
an
individual
product.
This
contrasts
with
the
US,
where
the
corporate
brand
name
may
mean
little
to
consumers
in
terms
of
the
value
they
attribute
to
it,
divorced
from
a
particular
product.
c. Asian
perceptions
are
affected
by
the
collectivist
nature
of
Asian
society
meaning
inter
alia
that
specific
reference
groups
may
be
critical
in
persuading
customers
to
purchase
a
product,
and
that
comparative
advertising,
including
criticism
of
other
firms,
is
inappropriate.
i. Schmitt
&
Pans
implicit
message
is
that
senior
management
must
either
pay
sufficient
attention
to
these
shopping
lists
of
distance
components
or
else
follow
Ghemawats
perception
and
avoid
such
high-distance
markets
altogether.
Chapter
5:
Combining
firm-specific
advantages
and
location
advantages
in
a
multinational
network
Bartlett
&
Ghoshall
(1986)
How
MNEs
should
manage
their
subsidiary
network.
They
suggest
that
(1)
many
MNEs
mistakenly
view
host
country
subsidiaries
simply
as
recipients
and
distributors
of
company
knowledge
and
products.
These
MNEs
do
not
recognize
the
MNEs
potential
to
develop
unique
bundles
which
in
turn
can
make
the
corporate
HQ
isolated
and
oblivious
to
changing
conditions
in
key
international
markets.
(2)
The
HQ
hierarchy
syndrome;
senior
management
views
the
organizations
as
consisting
of
two
distinct
levels;
- Dominant
o Corporate
HQ
control
key
decision-making
process
and
overall
company
resources
in
order
to
implement
a
consistent
global
strategy
- Subordinate
o National
subsidiaries,
merely
act
as
implementers
and
adapters
of
the
global
strategy
in
their
localities.
These
two
simplifying
strategies
homogenization
and
centralization
cause
tensions
between
headquarters
and
subsidiaries,
as
corporate
HQ
attempt
to
maintain
control
of
the
subsidiary
network,
while
entrepreneurial
subsidiary
managers
fight
for
more
independence
and
freedom
of
action
in
their
local
markets.
- B&G
Both
have
dysfunctional
effects
on
the
MNE.
o Strategy
1:
important
markets
and
subsidiaries
are
treated
in
the
same
way
as
unimportant
ones,
and
therefore
the
opportunities
they
provide
are
not
fully
exploited.
o Strategy
2:
subsidiaries
with
a
distinct,
specialized
resource
base
are
unable
to
excape
from
an
implementer
role
and
unleash
their
entrepreneurial
abilities.
In
response
to
these
problems
B&G
observed
a
number
of
MNEs
have
moved
towards
an
organizational
model
of
differentiated
rather
than
homogenous
subsidiary
roles
and
dispersed
rather
than
concentrated
responsibilities.
(Either
positive
or
negative)
Types
of
subsidiary
categories
1. Black
hole:
rather
weak
unit
in
terms
of
specialized
resources,
but
it
is
located
in
a
strategically
important
market.
The
MNE
can
use
this
unit
to
maintain
a
High
2
4
Low
Low
High
Resource
base
of
the
subsidiary
Keeping
these
four
subsidiary
categories
in
mind,
senior
management
at
corporate
HQ
must
provide
a
clear
sense
of
overall
strategic
direction,
and
allocate
appropriate
roles
and
responsibilities
to
the
different
subsidiaries
in
the
MNE
network;
as
a
function
of
the
specialized
resources
they
command
and
the
importance
of
the
market
in
which
they
are
located.
Context
and
complementary
perspectives
Kuemmerle
offers
the
following
4
qualities
of
the
ideal
profile
of
R&D
unit
leaders
whom
are
instrumental
to
the
necessary
knowledge
recombination;
- Respected
scientists
or
engineers
and
skilled
managers
- Able
to
integrate
the
new
site
into
the
companys
existing
R&D
network
- Comprehensive
understanding
of
technology
trends
- Able
to
overcome
formal
barriers
when
they
seek
access
to
new
ideas
in
local
universities
and
scientific
communities
R&D
lab
managers
must
be
able
to
marshal
the
resources
necessary
for
the
lab
to
be
successful
in
meeting
its
objectives,
including
new
FSA
development.
Kuemmerle
illustrates
that
MNEs
are
increasingly
adopting
an
interlinked
network
of
host
country
facilities
to
improve
their
R&D
efforts,
rather
than
relying
on
a
centralized
approach
with
all
core
R&D
performed
in
the
firms
home
market.
In
addition,
the
labs
can
play
different
roles,
depending
on
whether
their
primary
purpose
is
to
exploit
knowledge
or
augment
knowledge.
Chapter
7:
International
sourcing
and
production
Kasra
Fewdows
making
the
most
of
foreign
factories
(HBR)
This
chapter
will
extend
the
analysis
of
ch.
5
&
6,
looking
at
how
MNEs
can
tap
their
foreign
factories.
Research
based
on
a
wide
variety
of
sources,
including
his
own
consulting
work
with
a
dozen
large
manufacturing
MNEs,
4
year
study
etc.
Ferdows
attempts
to
answer
one
key
question:
How
can
a
factory
located
outside
of
a
companys
home
country
be
sued
as
a
competitive
weapon
not
only
in
the
market
that
it
directly
serves
but
also
in
every
market
served
by
the
company?
- Answer
depends
on
the
mindset
of
home
country
senior
managers:
o Senior
managers
who
view
their
factories
merely
as
sources
of
efficient,
low-cost
product
typically
dont
allocate
their
factories
many
resources
These
managers
get
only
what
they
expect:
efficient,
low-cost
production
o Senior
managers
with
higher
performance
expectation
from
their
foreign
factoris
require
innovation
and
customer
service
as
well
These
managers
generally
expect
their
foreign
factories
to
be
highly
productive
and
innovative,
to
achieve
low
costs,
and
to
provide
exemplary
service
to
customers
throughout
the
world.
They
allocate
their
factories
more
resources
and
get
more
in
return
Ferdows
observes
that
the
most
successful
manufacturing
MNEs
view
their
foreign
factories
as
sources
of
FSAs
beyond
the
ability
to
save
costs
as
with
conventional
offshoring
plants.
Beyond
the
traditional
motives
such
as
tariff
&
trade
concessions,
cheap
labor,
capital,
subsidies
and
reduced
logistics
costs;
MNEs
should
levarage
their
foreign
factories
to
get
closer
to
customers
and
suppliers
to
attract
skilled
and
talented
employees,
and
to
create
centres
of
expertise
for
the
entire
company
There
are
three
changes
in
the
international
business
environment
driving
the
assignment
of
these
new
foreign
factory
roles;
1. International
trade
tariffs
declined
substantially
in
the
second
half
of
the
20th
century,
reducing
the
need
to
establish
foreign
plants
merely
to
overcome
trade
barriers
2. Modern
manufacturing
is
increasingly
technologically
sophisticated
(meaning
capital-intensive)
and
has
complex
supply-chain
requirements
a.
MNEs
seldom
select
manufacturing
locations
based
simply
on
the
lowest
possible
wages,
rather
the
emphasis
is
on
the
overall
productivity
level
(factors
influencing
that;
infrastructure,
technology,
worker
education
and
skills
3. Time
frame
available
to
move
from
development
to
actual
manufacturing
and
marketing
has
become
shorter
a. MNEs
increasingly
co-locate
development
and
manufacturing
activities
in
highly
specialized
plants,
which
then
receive
broad
geographic
mandates
within
their
areas
of
expertise.
This
falls
in
line
with
ch.
6
that
a
successful
penetration
of
foreign
markets
requires
more
than
merely
transferring
non-location-bound
knowledge
from
the
home
country
to
the
host
country.
- The
subsidiary
must
develop,
in
its
own
right,
internationally
transferable
FSAs
building
up
the
location
advantages
of
the
host
country
cluster.
The
article
distinguishes
among
six
possible
roles
for
foreign
manufacturing
facilities,
based
upon
two
parameters;
1. Strategic
purpose
of
the
plant
a. Proximity
to
the
market
(importance
of
output
markets
for
selling
the
products)
b. Access
to
low-cost
production
(factories
need
to
acces
input
markets)
c. Access
to
knowledge
and
skills
(often
closely
tied
to
both
in-
and
output
markets)
i. Encompasses
need
to
tap
into
input
markets,
but
the
ultimate
goal
is
to
serve
(output)
markets
with
innovative
products.
2. The
level
of
distinct
FSAs
held
by
the
plant
(weak
or
strong)
Six
roles
of
foreign
manufacturing
plants
1. Offshore
factory
a. Primarys
purpose
simply
access
low-cost
production
factors
as
an
implementer
on
the
input
side
b. The
plants
manufacturing
output,
typically
predetermined
by
senior
management
in
the
home
country,
is
then
exported.
c. This
factory
type
typically
does
not
develop
new
FSA
+
receives
minimum
autonomy
2. Server
factory
a. Primarys
purpose
manufacture
goods
and
to
supply
a
predefined,
proximate
national
or
regional
output
market
b. Market
imperfections
such
as
trade
barriers,
logistics
costs
and
foreign
exchange
exposure
usually
explain
the
establishment
of
such
factories
in
specific
host
countries
3.
4.
5.
6.
Overall
an
MNE
should
upgrade
its
offshore,
server
and
outpost
factories
so
that
they
fain
the
ability
to
develop
FSAs
such
as
source,
cotributor
and
lead
factories.
- However
this
upgrading
requires
a
high
level
of
commitment,
as
it
entails
a
substantial
investment
of
time
and
resources,
as
well
as
changes
in
a
factors
culture
and
management
style!!
Upgrading
is
spread
over
3
stages;
1. Enhancing
internal
performance
(i.e.
through
employee
training+edu)
2. Accessing
and
developing
external
resources
(i.e.
strengthening
the
plants
supplier
network
and
improving
logistics
integration
with
distributors
3. Developing
new
knowledge
that
can
benefit
the
overall
MNE
network
Emphasis
of
upgrading
lies
on
the
intangible
internal
strengths
and
location
advantages
rather
than
tangible
(lower
costs
etc)
The
solution
lies
in
specialization.
Ferdows
cautions
managers
about
4
common
obstacles
that
may
prevent
the
upgrading
of
foreign
factories:
1. Fear
of
relying
on
foreign
operations
for
critical
skills
2. Treating
overseas
factories
like
cash
cows
and
neglecting
long-term
investment
3. Creating
instability
by
shifting
production
in
reaction
to
fluctuating
exchange
rates
and
costs
4. Enticement
of
government
relocation
incentives
to
move
factories
to
new
locations
that
possess
minimal
potential
for
upgrading
Insert
figure
page
222
Chapter
8:
International
finance
Lessard
&
Lightstone
How
MNEs
should
deal
with
economic
exposure
(different
from
transaction
and
translation
exposure)
- Economic
exposure:
the
(possbibly
negative)
impact
of
(largely
unexpected)
changes
in
real
exchange
rates
(on
a
firms
competetitiveness)
relative
to
the
MNEs
competitors
o To
minimize
this
impact
L&L
recommend
that
senior
managers
strive
to
Have
a
flexible
sourcing
structure
I.e.
be
able
to
shift
production
form
one
country
to
another
quickly
and
efficiently
Attain
the
capability
to
engage
in
exchange
rates
pass
through
I.e.
capability
to
raise
prices
in
response
to
exchange
rate
fluctuations
without
losing
sales
volume
- Transaction
exposure:
risk
of
financial
losses
resulting
from
outstanding
but
unfulfilled
contractual
commitments
(i.e.
sales
contracts
in
different
currency)
- Translation
exposure:
risk
of
losses
resulting
from
the
translation
of
accounting
statements
expressed
in
foreign
currencies
into
the
home
country
currency
at
consolidation
date
The
issue
is
not
to
understand
how
fluctuating
foreign
exchange
rates
directly
affect
the
companys
income
stream,
but
rather
to
gain
insights
into
the
longer-term
relative
inpacts
of
these
fluctuations
on
income
streams
Ie.
If
two
firms
have
the
exact
same
structure
in
terms
of
sourcing
(pridcut
differentiation,
flexilbility
to
shift
product)
from
a
foreign
country
then
a
fluctuation
of
the
exchange
rate
will
affect
them
in
the
same
way,
however
if
one
sources
from
another
country
then
it
affect
the
firms
differently
o Since
the
firm
with
the
strongest
market
position,
most
differentiated
products
and
the
greatest
flexibility
to
shift
production
will
incur
the
lowest
negative
impact
on
the
net
present
value
of
its
future
income
stream.
This
can
also
occur
in
purely
domestic
firms
without
foreign
operations
or
product
if
their
market
rivals
include
MNEs
whose
competitive
position
is
positively
affected
by
exhange
rates
for
internationally
sourced
inputs.
It
is
important
to
distinguish
between
real
vs
nominal
exchange
rates,
as
it
changes
in
the
real
exchange
rate
affect
the
level
of
economic
exposure!
- If
in
the
very
long
run
purchase
power
holds
than
(starting
from
an
equilibrium)
differences
in
inflation
rates
and
resulting
price
levels
between
countries
should
be
precisely
offset
by
corresponding
changes
in
their
nominal
exchange
rate.
o In
that
case,
real
exchange
rate
would
be
negligible.
- However,
causal
empiricism
teaches
that
differences
do
persist
in
the
medium
term
(sometimes
several
years),
and
its
these
real
exchange
rate
fluctuations
that
create
economic
exposure
risk
for
companies:
o In
the
short
run
of
6
months
to
several
years,
however,
exchange
rates
are
volatile
and
greatly
influence
the
competitiveness
of
companies
selling
to
the
same
market
but
getting
materials
and
labour
from
different
countries
- I.e.
if
a
US
company
sells
and
finances
within
the
US
then
it
has
no
transaction
and
translation
risk,
however
if
its
main
competitor
is
Japanese
it
will
have
an
economic
exposure.
o When
the
US
dollar
depreciates
against
the
yen.
Then
the
US
firm
has
a
competitive
advantage,
however
when
the
dollars
real
exchange
rate
increases
the
position
will
be
weakened
through
higher
relative
costs.
o Only
in
cases
whereby
the
nominal
exchange
rate
changes
between
the
dollar
and
yen
correspond
exactly
with
differences
in
inflation
rates
between
the
US
and
Japan,
is
purchasing
power
parity
maintained.
- Nominal
rates:
The
direct
exchange
rates
between
currencies
o i.e.
nominal
rate
of
4%
- Real
exchange
rate:
Changes
in
the
nominal
exchange
rate
minus
the
difference
in
inflation
rates
between
two
countries
o
i.e.
real
rate
4%
-
3%
(inflation
difference)
Economic
exposure
not
only
depends
on
decision-making
inside
the
individual
firm,
but
also
on
choices
made
by
rivals
in
terms
of
the
geographic
configuration
of
their
investments
and
their
sourcing
policies.
According
to
L&L
there
are
3
important
elements
of
economic
exposure:
- Economic
exposure
should
be
viewed
as
a
parameter
that
adds
uncertainty
to
the
value
of
a
firms
location
advantages
Inspired
by
L&L
the
following
figure
provides
a
classification
of
operating
exposure
at
the
subsidiary
level:
-
-
The
vertical
axis
represents
the
capability
relative
to
rivals
to
adjust
its
source
structure
and
thus
its
cost
position,
to
a
potential
new
exchange
rate
reality.
The
horizontal
axis
shows
the
units
capability
to
pass
through
changes
in
real
exchange
rates
o Is
the
subsidiary
in
a
position
to
pass
any
price
changes
on
to
its
customers?
(in
3.
This
is
the
case,
the
firm
can
do
this
without
a
loss
of
business)
o 2.
MNEs
in
this
quadrant
typically
sell
commodity-type
products,
the
sales
of
which
can
be
greatly
affected
by
even
a
small
price
increase
(high
price
elasticity).
Also
typical
for
subsidiaries
that
import
products
from
the
parent
company
home
(FX
risk)
and
that
lack
a
strong
market
position
in
the
host
country
(i.e.
lot
of
competitors)
In
the
long
run
managers
should
consider
economic-
exposure
when
setting
strategy
and
worldwide
product
planning.
Companies
that
hedge
their
transaction
exposure
but
fail
to
take
economic
exposure
into
account
may
be
actually
raising
their
total
exposure
They
suggest
that
companies
typically
manage
economic
exposure
through
one
of
three
approaches,
which
tend
to
be
more
strategic
than
administratively
oriented,
currency
hedging
instruments
available
for
managing
contractual
exposure:
1. Each
business
unit
is
assessed
individually,
and
therefore
configures
its
own
operations
in
such
a
way
as
to
reduce
its
specific
economic
exposure
a. This
strategy
entails
a
trade-off
between
increased
production
costs
and
lowered
risks
2. Company-wide
perspective,
whereby
a
portfolio
of
businesses
and
operational
structures
is
selected
with
offsetting
exposures
which
balance
each
other
a. Result
of
such
diversification
is
a
lower
total
rate
of
exposure
across
the
company,
even
though
individual
units
may
continue
to
have
higher
levels
of
risk
on
their
own
3. Incorporates
flexibility
in
operational
planning.
The
company
exploits
fluctuating
exchange
rates
by
switching
production
between
factories
a. Again,
a
trade-off
is
necessary
between
the
increased
costs
of
carrying
excess
capacity
(so
as
to
allow
production
transfers)
on
the
one
hand
and
reduced
economic
exposure
risks
on
the
other
Managers
who
cannot
set
company
policy
on
economic
exposure
should
not
be
held
responsible
for
the
economic
exposure
effects
of
volatile
exchange
rates.
When
assessing
the
performance
of
these
managers,
senior
management
should
reduce
their
own
bounded
rationality
problem
by
adjusting
either
performances
indicators
or
goal-based
expectations
to
eliminate
the
economic-exposure
effects
on
performance
of
fluctuations
in
real
exchange
rates.
However,
these
types
of
administrative
adjustments
will
be
insufficient,
and
real
bounded
rationality
reduction
will
require
substantial
investment
in
communication.
Chapter
10:
Managing
managers
in
the
multinational
enterprise
MNEs
must
develop
managers
with
a
broad
mental
map
covering
the
entirety
of
the
MNE;s
geographically
dispersed
operations.
This
is
critical
to
the
MNEs
long-term
profitability
and
growth,
especially
in
an
era
when
foreign
markets
are
becoming
increasingly
important
contributors
to
innovation
and
cost
reduction
at
the
upstream
end
of
the
value
chain,
and
to
overall
sales
performance
at
the
downstream
end.
Managers
commanding
deep
knowledge
of
internal
MNE
functioning
represent
the
MNEs
key
resource
to
facilitate
international
expansion
and
to
coordinate
geographically
dispersed,
established
operations,
such
managers
are
best
positioned
to
- Engage
in
the
international
transfer
of
non-location-bound
FSAs
from
the
home
nation
- Identify
the
need
for
new
FSA
development
in
host
countries
and
facilitate
such
development
- Help
combine
location-bound
and
non-location
bound
FSAs.
Expatriation
is
the
most
direct
and
rigorous
way
to
give
managers
this
in-depth
knowledge
of
the
MNEs
internal
network,
as
well
as
the
abilities
to
transfer
routines
abroad
and
be
catalyst
for
recombining
resources.
- It
also
gives
managers
valuable
experiential
knowledge
of
the
pressure
for
good
faith
local
prioritization
and
other
types
of
benevolent
preference
reversal
in
affiliates.
o Which
will
reduce
bounded
rationality
problems
Black
&
Gregersens
paper
describes
the
alarming
findings
that
nearly
80&
of
all
mid-
to
large-sized
MNEs
send
managers
abroad
at
a
significant
cost
to
the
company;
- 10-20%
of
US
expatriates
actually
came
back
home
early
because
of
dissatisfaction
or
disillusionment
and
difficulties
to
a
new
foreign
culture
- >30%
did
not
meet
senior
management
expectations
- Of
those
who
completed
25%
ended
up
leaving
the
company
Black
&
Gregersens
attribute
these
unfavourable
outcomes
to
4
common
problems
in
how
firms
manage
their
expatriates;
1. Senior
managers
in
the
home
country
often
underestimate
the
impact
of
cultural
distance
on
organizational
functioning
and,
as
a
result,
do
not
invest
sufiecient
in
programmes
to
select
and
train
properly
potential
candidates.
2. Responsibility
for
expatriates
is
often
assigned
to
human
resources
managers,
very
few
of
whom
have
an
y
international
experience
a.
little
insight
in
the
problems
faced
and
how
they
remedy
them.
3. Senior
managemnt
in
many
MNEs
view
expatriates
as
being
well
paid
and
well
looked
after,
and
therefore
as
having
little
to
complain
about
4. Many
MNEs
mistakingly
assume
that
expatriates
do
not
need
help
readjusting
after
having
returned
home,
despite
the
fact
that
changes
will
likely
have
occurred
during
their
absence.
Black
&
Gregersens:
when
it
comes
to
successfully
managing
expatriate
managers,
there
are
3
best
practices;
1. Focus
on
creating
knowledge
and
developing
global
leadership
skills
a. Both
senior
management
in
the
expatriates
home
country
and
the
individual
sent
abroad
share
a
clear
understanding
of
the
expatriations
purpose
and
related
expectations.
i. What
types
of
knowledge
should
be
acquired
etc.
b. Carefull
planning
on
these
issues
yield
more
long-term
benefits
to
both
the
company
and
the
employees
than
expatriate
assignments
simply
geared
towards
filling
a
staffing
shortage
or
business
need
abroad.
2. Make
sure
that
candidates
have
cross-cultural
skills
to
match
their
technical
abilities
a. Cross-cultural
abilities
are
often
overlooked
as
companies
tend
to
send
people
who
are
capable
but
culturally
illiterate
effective
resource
recombination
requires
a
mix
of
technical
and
social
skills
3. Prepare
people
to
make
the
transition
back
to
their
home
offices
a. Devote
substantial
attention
to
reintegrating
expatriates
into
their
home
country
after
their
assignment
i. Such
a
process
allow
effective
absorption
of
the
former
expatriate
into
the
home
countrys
professional
and
personal
environment
The
authors
suggest
that
it
is
the
simultaneous
adoption
of
all
3
practises
that
leads
to
successful
expatriate
management;
adopting
only
one
or
two
of
the
practices
does
not
suffice
to
achieve
successful
assignments
In
addition
to
outlining
the
appropriate
way
to
manage
expatriate
employees,
Black
&
Gregersen
also
discuss
the
required
personal
characteristics
for
employees
to
be
high-
potential
expatriate
prospects.
Successful
companies
look
for
five
characteristics:
1. A
drive
to
communicate
2. Broad-based
sociability
3. Cultural
flexibility
4. Cosmopolitan
orientation
5. Collaborative
negotiation
style
PART
3:
Dynamics
of
global
strategy
Chapter
11:
Entry
mode
dynamics
1:
Foreign
distributors
Chapter
12:
Entry
mode
dynamics
2:
Strategic
alliance
partners
Chapter
13:
Entry
mode
dynamics
1:
Mergers
and
acquisitions
Chapter
14:
The
role
of
emerging
economies
Chapter
15:
Emerging
economy
multinational
enterprises
Chapter
16A:
International
strategies
of
corporate
social
responsibility
Chapter
16B:
International
strategies
of
corporate
environmental
sustainability