From United Nations University
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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
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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
Ghoshal(1989)
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
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Vernon and Wells(1987) See Bibliography
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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
companies
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
manufacturing)
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
boundaries
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
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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
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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
governments
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
subsequent)
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
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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
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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
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Eitman and Stonehill(1987)
Robinson(1978)
Grubel(1968)
Rugman(1979) See Bibliography
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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
investments
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
imperfections
- 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
guarantees
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
nationalisation
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
countries
c) multilateral schemes e.g. Multilateral Investment and
Guarantee Scheme (MIGA) and Guaranteed Recovery of Investment
Principle (GRIP) (World Bank)
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Kobrin(1982)
Eitman and Stonehill(1987)
Eaton and Gersovitz, Shubik, Dunn and Vernon in Herring ed.(1983a)
Branson, Levy and Sarnat, Ijiri in Herring (1983b)
Moran(1984)
Mascarenhas and San(1985)
Rugman, Lecraw and Booth(1985)
De La Torre and Neckar(1986) See Bibliography
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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
affiliates
iii) issues relating to work ethic, productivity authority,
team work, job flexibility, quality control and worker
motivation
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
management
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
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Robinson(1978)
Masin, Miller and Weigel (1983)
Robock and Simmons(1983)
Caves(1982)
Hakanson and Zander(1986) See Bibliography
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-RRojas Research Unit/1996
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