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Understanding Corporate Strategy and Foreign Direct Investment in Multinational Corporations

This chapter explores the relationship between corporate strategy and foreign direct investment (FDI) within multinational corporations (MNCs). It discusses why MNCs engage in FDI and the conditions under which it is justified, including market integration and financial market imperfections. The chapter categorizes MNCs into innovation-based, mature, and senescent firms, examining their strategic approaches. Additionally, it outlines essential elements for designing a global expansion strategy, such as selecting entry modes, assessing competitive advantages, and ensuring sustainable growth in international markets.

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Understanding Corporate Strategy and Foreign Direct Investment in Multinational Corporations

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  1. CHAPTER 16 Corporate Strategy and Foreign Direct Investment

  2. THE THEORY OF THE MULTINATIONAL CORPORATION • I. THE THEORY OF 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

  3. THE THEORY OF THE MULTINATIONAL CORPORATION • B. Financial Market Imperfections • 1. Hypothesis • 2. Diversification Effect of the MNC

  4. THE STRATEGY OF THE MNC • II. THE STRATEGY OF THE MNC • A. Three strategies: • 1. The Innovation-based MNC

  5. THE STRATEGY OF THE MNC • Strategies (con’t) • 2. The Mature MNC • a. the importance of economies of scale and • b. economies of scope

  6. THE STRATEGY OF THE MNC • 3. The Senescent MNC • a. global scanning capability • b. the role of rationalization and integration.

  7. THE STRATEGY OF THE MNC • 4. FDI and Survival • a. Cost reduction • b. Economies of scale • c. Multiple sourcing • d. Keeping domestic customers

  8. DESIGNING A GLOBAL EXPANSION STRATEGY • III. DESIGNING A GLOBAL EXPANSION STRATEGY • 5 Necessary Elements

  9. DESIGNING A GLOBAL EXPANSION STRATEGY • A. 5 Necessary Elements • 1. Awareness of profitable investments • -building competitive advantage • 2. Selecting a mode of entry • -evaluate systematically • 3. Adjusting the Effectiveness of the Entry Mode • - continual auditing • 4. Using appropriate evaluation criteria • 5. Estimating the longevity of competitive • advantage: • a. Develop competitive strength • transferable overseas. • b. Not easily duplicated

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