|
Types of
international
production |
(O)
Ownership
advantages (the
“why” of MNE
activity) |
(L)
Location
advantages (the
“where” of
production) |
(I)
Internalization
advantages (the
“how” of
involvement) |
Strategic(s)
goals of MNEs |
Illustration of
types of
activity that
favour MNEs |
||
|
|
Capital,
technology,
access to
markets,
complementary
assets; size and
negotiating
strengths |
Possession of
natural
resources and
related
transport and
communications
infrastructure;
tax and other
incentives |
To ensure
stability of
supplies at
right price;
control markets |
To gain
privileged
access to
resources
vis-á-vis
competitors |
(a) Oil, copper,
bauxite,
bananas,
pineapples,
cocoa, hotels
(b) Export
processing
labour-intensive
products or
processes |
||
|
Market seeking
1) Determine what kind of production your TNC is involving in overseas |
Capital,
technology,
information,
management and
organizational
skills; surplus
R&D and other
capacity,
economies of
scale, ability
to generate
brand loyalty |
Material and
labour costs;
market size and
characteristics;
government
policy (a.g.
with respect to
regulations and
to import
controls,
investment
incentives,
etc.) |
Wish to reduce
transaction or
information
costs, buyer
ignorance or
uncertainly,
etc.., to
protect property
rights |
To protect
existing
markets,
counteract
behavior of
competitors; to
preclude rivals
or potential
rivals from
gaining new
markets |
Computers,
pharmaceuticals,
motor vehicles,
cigarettes,
processed foods,
airline services |
||
|
Efficiency
seeking (a) of
product (b) of
processes
|
As above, but
also access to
markets;
economies of
scope,
geographical
diversification
and
international
sourcing of
inputs |
(a) Economies of
product
specialization
and
concentration
(b) Low labour
costs;
incentives to
local production
by host
governments |
(a) As for
second category
plus gains from
economies of
common
governance
(b) The
economies of
vertical
integration and
horizontal
diversification |
As part of
regional or
global product
rationalization
and/or to gain
advantages of
process
specialization |
(a) Motor
vehicles,
electrical
appliances,
business
services, some
R&D
(b) Consumer
electronics,
textiles and
clothing,
cameras,
pharmaceuticals |
||
|
|
Any of first
three that offer
opportunities
for synergy with
existing assets |
Any of first
three that offer
technology,
markets and
other assets in
which firm is
deficient |
Economies of
common
governance;
improved
competitiveness
to gain new
product lines or
market |
To strengthen
global
innovatory or
production
competitiveness;
to gain new
product lines or
markets |
Industries that
record a high
ratio of fixed
to overhead
costs and which
offer
substantial
economies of
scale or synergy |
||
|
Trade and
distribution
(import and
export
merchanting) |
Market access;
products to
distribute |
Source of inputs
and local
markets; need to
be near
customers;
after-sales
servicing, etc. |
Need to protect
quality of
inputs; need to
ensure sales
outlets and to
avoid
underperformance
or
misrepresentation
by foreign
agents |
Either as entry
to new markets
or as part of
regional or
global marketing
strategy |
A variety of
goods,
particularly
those requiring
contact with
subcontractors
and final
consumers |
||
|
Support services |
Experience of
clients in home
countries |
Availability of
markets,
particularly
those of “lead”
clients |
Various (see
above categories |
As part of
regional or
global product
or geographical
diversification |
(a) Accounting
advertising,
banking,
producer goods
(b) Where
spatial linkages
are essential
(e.g. airlines
and shipping) |
