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From United Nations University

 9. Assessing the international market: the internationalisation process
10. Organising for international bussiness: controlling foreign
    affiliates: production management
11. Managing financial assets: the capital budgeting process
12. Financing TNC operations
13. Managing international risk
14. Managing resources: human and technology

9. Assessing the international market: the internationalisation process

9.1 Inside the TNC. An overview

9.2 The investment decision process
   a) institutional and organizational variables

   b) reasons for making the investment

   c) factors in determining locational choice

   d) assessment of risk and uncertainty

9.3 The choice among alternative forms of participation
   a) 100% affiliate

   b) majority joint ventures

   c) minority joint ventures

   d) non equity arrangements

9.4 The internationalisation process: (a) types of entry modes
   a) exports

   b) licensing and other contractual agreements with foreign firms

   c) strategic alliances among TNCs

   d) direct investment

   e) designing entry strategies in a global enterprise system

9.5 The internationalisation process: (b) determinants
    There are many forms of TNC involvement ranging from sales
    subsidiary through an assembling (screw driver) operation to
    full fledged manufacturing. The factors affecting the nature
    and extent of a TNC's presence include:
   a) prior links with a country

   b) industry, country and firm specific factors

   c) the dynamics of entry modes

   d) extent of transnationality of firms

   e) behaviour of competitors

   f) risk considerations (see 13.)

   g) reasons for internalising markets in process of moving from
      selling to producing abroad

   h) modelling the export/FDI/licensing choice

9.6 The internationalisation process: (c) expansion strategies
    towards a global product and marketing strategy
   a) range and type of activities undertaken by TNC

   b) multidomestic global and transnational firms: Doz(1985)
      Porter(1986) Prahalad and Doz(1987); and Bartlett and

   c) plant specialisation and intra-firm trade; the factors
      influencing which value added activities are decentralized by
      the TNC

   d) locational implications of a), b) and c)

   e) external (e.g. environmental) and internal (e.g. size, nature
      of activities, age, management goals, attitude to risk,
      entrepreneurial quality) factors

   f) the need for a pluralistic approach to expansion strategies

9.7 TNC corporate planning
   a) unique features of planning in the multinational context

   b) strategic long range/operational planning

   c) centralized/decentralized planning
Vernon and Wells(1987)     See Bibliography

10. Organising for international bussiness: controlling foreign
    affiliates: production management

10.1 Philosophies of TNCs towards their foreign affiliates
    a) ethnocentric

    b) geocentric

    c) polycentric
       The conditions under which each (or a mixture) of the above
       philosophies is likely to prevail

10.2 Types of TNCs
    a) the multi-domestic enterprises (e.g. Bata Shoe, British
       American Tobacco)

    b) the globally integrated enterprises (e.g. IBM, Toyota)

    c) the transnational companies: balancing local demand with
       global vision (e.g. Philips of Endhoven, Caterpillar Tractor)

    d) the factors determining types of TNCs

10.3 Issues of strategic management and control

10.4 Organising international business
    a) stages of development; from unitary to multi-divisional forms

    b) alternative structures
      i) the functional structure eg. SKF
     ii) the geographic structure eg. major oil and pharmaceutical
    iii) the product structure eg. General Electric, Sperry, IBM
     iv) the matrix structure eg. Massey-Ferguson

    c) the choice among alternatives
      i) firm specific factors
         - size
         - product/process diversification
         - transnationality
     ii) country specific factors
         - desire to be part of international division of labour
         - role of host governments
         - legal, institutional and cultural considerations

    d) the organizational response to government's intervention

10.5 Decision taking within TNCs
    a) the reasons for centralised decision taking; the principle/agent
       paradigm, efficiency and cost considerations, possible conflicts
       of interest between the TNCs and its affiliates

    b) in which directions and how much TNCs control their affiliates?
       This will very much depend on the functions they undertake
      i) management philosophy
     ii) product strategy
    iii) process technology
     iv) purchasing
      v) R & D activities
     vi) labour and industrial relations
    vii) sales and marketing
   viii) capital expenditure, budgetary control, etc.

    c) the determinants of b) with respect to types of FDI, industry,
       country and firm specific characteristics. Cf. for example,
       Japanese and U.S. control procedures; and why, in some sectors
       or in some countries, affiliates are subject to more control
       than others

    d) the options open to host governments to affect the locus of
       decision taking by TNCs

10.6 Production management
    a) alternative production systems

    b) factors affecting production management (especially 
      i) affiliates as autonomous units or part of world-wide
         network of TNV activities
     ii) culture of home country (Japanese vs US production
         management styles)
    iii) technological characteristics of production: tendency
         towards more automated, yet flexible, management
         systems (modular assemblies, robots and computer assisted
         manufacturing). Yet need for greater integration between
         different stages of production process
     iv) the importance of quality control and minimising transaction
         costs (e.g. by just-on-time deliveries, reducing number of
         separate transactions with suppliers)
      v) the technological and economic environment for production;
         the role of governments
     vi) advantages of coordinating production across national
    vii) the implications for developing countries of trends in
         i) to vii)

10.7 Selected issues in cross-cultural management
    a) the major debate

    b) convergence vs. divergence

    c) intercultural interaction

    d) TNC management strategy and cultures in developing countries
Brooke(1986) Vernon and Wells(1987) Stopford and Wells(1972)
Rugman, Lecraw and Booth(1985)
Robock and Simmons(1983)
Adler and Ghadar(1990)                See Bibliography


11. Managing financial assets: the capital budgeting process

11.1 Introduction
     The contents of this section should be related to that of 
     No. 36. But, while this section is concerned with investment
     appraisal by the TNC, No. 36 deals with investment appraisal
     from the viewpoint of host countries

11.2 Analysing Foreign Projects
    a) problems encountered in evaluating foreign investment projects
       not present in domestic projects
      i) use of different currency(ies) to make investment
     ii) social and economic organisation in host countries
    iii) negotiating the distribution of benefits with foreign host

    b) Additional issues in project analysis
      i) the viewpoint from which the project is evaluated: parent
         or affiliate
     ii) the need to adjust cash or discount rates for additional
         foreign related risks

11.3 Evaluting projects
    a) the nature of project investment outlays (both initial and

    b) the likely flows of income (and determinants of same)

    c) the costs of production (and marketing)

    d) taxation ( and other measures designed to retain income
       earned in the host country)

    e) the likely terminal value of the investments

    f) the opportunity cost on the capital (i.e. the appropriate
       discount rate)

11.4 The economics of cost-benefit analysis
    a) setting objectives

    b) demand forecasting

    c) time preference and discounting

    d) opportunity costs and shadow pricing

    e) transfer pricing

    f) measures of project profitability

    g) project priorities and investment planning

    h) sensitivity and risk analysis

    i) in the case of joint ventures, the distribution of
       contributions to, and gains from, value added
Stobaugh(1969a) Rugman, Lecraw and Booth(1985)
Lessard ed.(1985) Baum and Tolbert(1985)
Mason, Miller and Weigel(1981)
Eitman and Stonehill(1987)                  See Bibliography


12. Financing TNC operations

12.1 the source of funds
    a) sources of capital financing
      i) funds generated internally by the foreign affiliates
     ii) funds from within the corporate family
    iii) funds from external sources
         - banks and financial institutions
         - security or money markets
         - local currency debt
         - third country debt
         - eurocurrency debt
         - individual shareholders
         - joint-venture partners
         - governments
         - international lending institutions

    b) the choice among sources
      i) minimizing the cost of external funds, after adjusting
         for exchange risk
     ii) minimizing political risks and taxes
    iii) ensuring management foreign affiliate motivated to minimise
         firm's consolidated world-wide cost of capital

    c) factors influencing a TNC's choice of funding sources

12.2 the determinants of alternative financing mechanisms
    a) the effect of the international availability of capital on the
       optimal debt ratio of a TNC

    b) the possibility to reduce financial risk through international
       diversification of cash flows

    c) the financial structure of foreign affiliates, in light of
       varying country norms, availability of funds, foreign exchange
       risk, political risk and tax minimalisation

    d) optimising the financial structure: TNCs vs. national firms

Eitman and Stonehill(1987)
Rugman(1979)                   See Bibliography


13. Managing international risk

13.1 the nature of risk
    a) what is it, how is it perceived, how does one respond to
       it, what is the market failure associated with risk taking?

    b) types of commercial risk include
      i) exchange risks (see 13.2)
     ii) possible cost changes (raw material, wage rates,
         taxation, etc.)
    iii) supply disruptions
     iv) response of competitors
      v) R & D amortization risk (technological obsolescence)
     vi) changes in level patterns and quality of demand
         (i.e. market risk)

    c) risk as an:
      i) inducement to FDI; and
     ii) as a deterrent to FDI; the distinction between taking
         risks and being at risk

    d) organisational and institutional responses to international
       risk associated with:
      i) raw material industries
     ii) high technology industries
    iii) oligopolistic behaviour

    e) risks and modes of international economic involvement
       e.g. 100% cf. joint ventures; acquisitions v. greenfield

    f) risk and the distribution of the portfolios of TNC activities

    g) general approaches countering or minimising risk
      i) shift risk e.g. by insurance or use of future markets
     ii) adjust investment criteria
    iii) spread risks (by diversifying output and markets,
         multiple sourcing)
     iv) internalise markets
      v) minimise or avoid risk exposure
     vi) co-opt competition and/or engage in inter-firm
         cooperative agreements
    vii) engage in joint ventures or non-contractual agreements
         rather than in 100% equity investment

    g) how TNCs might profit from environmental risk

13.2 managing foreign exchange risk
    a) types of exchange risks
      i) translation exposure (the possible change in the 
         liquidation value of the firms foreign affiliates
         consequent to an exchange rate movement)
     ii) transaction exposure (the possibility of gain or loss
         stemming from the completion of a transaction occurring
         after an exchange rate has changed)
    iii) economic exposure (possible changes in expected cash
         flows arising because of an unexpected change in 
         exchange rate)
     iv) tax exposure ( the implications of gains or losses from
         currency changes for corporation and other taxes)

    b) possible effects of exchange rate changes
      i) export pricing
     ii) sourcing
    iii) plant location
     iv) types of products supplied

    c) systems for managing exchange rate exposure
      i) to minimize transaction and translation exposure
         - various types of hedging (forward exchange market,
           money market and balance sheet hedging)
         - the use of leads and lags (via appropriate timing
           of fund transfers, e.g. for exports and imports)
     ii) to minimize economic exposure
         - the diversification of production sourcing and markets
         - the diversification of sources of finance. 
           Among those open to minimise transaction and 
           translation are
    iii) to counteract exchange rate rigidities and other
         - counter trade, barter and buy back agreements

    d) deciding when protective or risk minimising measures are
       needed and which should be employed; an analysis of
       alternative government policies

13.3 managing political risk
    a) the nature and main forms of political risk
      i) macro risks (which affect all firms)
     ii) micro risks( which are specific to industries,
         firms or projects)
    iii) among the risks faced by TNCs might be mentioned,
         changes in government attitudes and/or action towards
         currency convertibility, ownership and control,
         performance requirements, level of protection,
         incentives, standards and specification, investment
     iv) risks may also arise due to inadequacies in information
         and/or the efficacy of national legal systems e.g. with
         respect to the law of contracts, or protection of
         intellectual property; or to unsatisfactory enforcement
         procedures or judicial fora

    b) the historical record e.g. with respect to expropriation,
       forced divestment, changing structure of bargaining power

    c) the measurement of political risk; qualitative and 
       quantitative models; macro-micro oriented models
      i) Hanedel-West-Meadows Index
     ii) BERI Index
    iii) Business International Index
     iv) Frost and Sullivan (The World Political Risk Forecast)
      v) Corporate in house models

    d) modelling political risk (De La Torre and Neckar 1986)
      i) economic factors
     ii) socio-political factors

    e) techniques for dealing with (i.e. minimising or
       counteracting) political risk
      i) a better appreciation of possible strategic positives
         which might be adopted towards risk
     ii) negotiating the environment prior to FDI
    iii) operating strategies
     iv) compensating strategies after expropriation or

13.4 investment guarantee or insurance schemes to protect TNCs against
     non-commercial risk (see also 37 and 38)
    a) unilateral schemes e.g. Overseas Private Investment 
       Corporation (OPIC) (U.S.)

    b) bilateral schemes, i.e. as between individual home and host

    c) multilateral schemes e.g. Multilateral Investment and
       Guarantee Scheme (MIGA) and Guaranteed Recovery of Investment
       Principle (GRIP) (World Bank)
Eitman and Stonehill(1987)
Eaton and Gersovitz, Shubik, Dunn and Vernon in Herring ed.(1983a)
Branson, Levy and Sarnat, Ijiri in Herring (1983b)
Mascarenhas and San(1985)
Rugman, Lecraw and Booth(1985)
De La Torre and Neckar(1986)    See Bibliography


14. Managing resources: human and technology

14.1 managing human resources
    a) the central issues
      i) the recruitment, training and geographical utilisation
         of international executives
     ii) the employment of foreign nationals or expatriates in
         management and professional positions in foreign
    iii) issues relating to work ethic, productivity authority,
         team work, job flexibility, quality control and worker
     iv) industrial relations in the TNC (including union management)
      v) the compensation of workers
     vi) the extent to which there is a perceived coincidence of
         interests between different types of workers and the TNC

    b) the criteria of choosing policies
      i) host government legislation and policies
     ii) availability and (real cost) of suitable skilled personnel
    iii) the mobility of skilled personnel
     iv) the personnel strategy of TNCs
      v) cross-border ideological, cultural, language and attitude
         differences, as they affect communication within TNCs and
         between TNCs (or their affiliates) and institutions in
         the countries in which they operate

14.2 managing technology and innovatory activities
    a) the production of technology, and organisation of R & D
      i) factors which determine whether innovatory activities
         will be centralized or decentralized: 
        a) those internal to the firm e.g. agglomerative and scale
           economies cf. tapping in to new scientific cultures
           and need to be near to local production and markets;
        b) and those external to the firm e.g. availability and
           cost of R & D personnel
     ii) analysis of the types of R & D which may be carried out
         by TNC affiliates; these include technical support and
         development activities, innovatory activities geared to
         the needs of the local market and specialized R & D
         undertaken on behalf of the global needs of TNCs
    iii) what determines where R & D is located, and how this may
         change over time

    b) the international dissemination of technology
      i) policies towards technology transfer pursued by the TNC
         - conditions under which TNC will seek to limit transfer
         - conditions under which TNC will prefer to internalise
           rather than externalise technology transfer
         - conditions under which TNC will cooperate with local
           firm to undertake innovatory activities
         - rationale for imposing restriction on use of technology
           by licensees or affiliates
     ii) the cost of resource transfer by the TNC

    c) the management of product and process technology in host
       countries (see also 17 and 18)
      i) the choice of technology by TNCs
     ii) the extent to which TNC is willing to adapt technology
         to host country needs

    d) technological activities of LDC based multinationals
Masin, Miller and Weigel (1983)
Robock and Simmons(1983)
Hakanson and Zander(1986)             See Bibliography

-RRojas Research Unit/1996