nestle - zaka (54)
TRANSCRIPT
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Chapter 7:
Multinational Formation
Keith Head
Sauder School ofBusiness
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The take-away for this
chapter Chapter 7 asks Where should we do thethings we do? At home: the country where top mgmt is
based. Abroad: offshore, overseas, in a foreign
country
The answer: It all depends on the 4elements of MN strategy: trade costs,factor advantages, PLEoS, marketsizes.
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Nestle
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IBM worldwide
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LG Electronics (part of LG Group,
formerly Goldstar Electronics)
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Levels of Multinational Strategy
Who is the we in Where should we do it?
An individual business unit business strategy
A collection of business units under the sameownership corporate strategy
A collection of business units linked through a
mix of equity ties and long term contractual
arrangements network strategy
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Multinational (single) Business Strategy
Home Country Foreign Country
Home Centralization
(Exporting)
Replication
Foreign Centralization
(Importing)
H-form
F-form
R-form
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Examples of Centralization
Home Centralization:
Boeing commercial aircraft assembly in U.S.
(mainly Seattle)
Airbus commercial aircraft assembly in EU
(mainly Toulouse)
Foreign Centralization:
Mattels Barbie dolls (2 factories inDongguan, China +1 in Malaysia +1 in Indon.)
Matsushitas TVs (Malaysia)
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Boeings Everett Factory:
the largest building in the world
(472 million cubic feet of space )
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Boeings Everett Factory:
sole location of 747 assembly
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Boeings 747
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Nestle, the Replicator
Area Sales Factories Employees
Americas 40% 32% 41%
Europe
(Switz.)
40%
(1.6%)
41%
(1.8%)
34%
(2.6%)
Asia, Africa
& Oceania
20% 27% 25%
254,000 Employees in 508 Factories in 85 Countries(2002 Management Report)
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Critical Foreign Market Size to Justify
Overseas Replication
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Critical Distance to Justify Overseas
Replication
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At Home, Abroad, or Both?
The Answer Depends (in part) on
Where Demand Is
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Home Centralization benefits
from Strong PLEoS Low trade costs to export to foreign
country Large home market
Home country has factor advantages
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Foreign Centralization benefits
from Strong PLEoS Low trade costs to import from foreign
country Large foreign market
Foreign country has factor advantages
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Replication Form benefits from
Weak PLEoS
Both markets are large
High trade costs impede exports &imports
Unimportant factor advantages: costs of
production similar across countries.
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Multi-product Multinationals
Corporate multinational strategy
considers best form for firms operating in
more than one business (product).
Relationships between products:
Unrelated
Vertical (intermediate inputs vs final
outputs)
Horizontal (complements vs substitutes)
Joint products
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Multinational Forms: Vertically
Related Products
Upstream (U) creates inputs
Downstream (D) uses U inputs to create outputs
Examples:
Teaching: U is PPT preparation, D ispresentation to students
Movies: U is writing & casting, D is filming &
editing (orU is movie production and D ismovie exhibition)
Steel: U is blast furnace, D is steel furnace &rolling mill
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Bao Steels integrated works
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ExxonMobil
Upstream: exploration in 37 countries
and production in 26 countries
Downstream: refining and marketing Owns 45 refineries, located in 25 countries
Operates 37,000 retail sites in 100+ countries
presence in about 200 countries
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ExxonMobils Upstream Sites
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ExxonMobils Downstream Sites
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Multinational Forms for 2 vertically
related products
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Vertical Specialization good if
Strong PLEoS
Low trade costs to export U to foreign
country
Low trade costs to import D fromforeign country
Home country has factor adv. for U
Foreign country has factor adv. for D
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Branching Form
Examples:
Coca Colas concentrate (U) and bottling (D)
Subarus engines (U) and car assembly (D) Benefits from
Low trade costs on U, high on D
Low PLEoS on D, high on U
Home factor adv. in U, weak factor advs. in D
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Multisourcing form
Defn: procuring same input from multiplesource countries
Examples: Refinery in one country, sourcing crude oil
from multiple drilling sites (in differentcountries)
Nikes network strategy in shoe mnfg.
Benefits from Low trade costs (for U & D)
Diseconomies of scale for U
Uncertain (unpredictable) factor adv. for U.
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Forms for 2 horizontally related
products, served by upstream
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Key trends in world economy
Falling trade costs
More efficient transportation (containers,
EDI, use of air transport)
Lower tariffs, WTO oversight of disguised
protection
Technology-powered improvements in long
distance communication Rising economies of scale?
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