Multinational Enterprise (MNE)

PESTEL Analysis

• PESTEL analysis covers Political, Economic, Sociocultural, Technological, Environmental and Legal factors impacting the international context.
• Political factors include taxation and education policy.
• Economic factors include currency exchange rates and the economic cycle.
• Sociocultural factors include demographic development and changes in lifestyles.
• Technological factors include technological innovations and infrastructure.
• Environmental factors include CO2 emissions and energy use.
• Legal factors include product liability and company law.

Forces for Global Integration

• Economies of scale and scope.
• Factor costs, specifically the advantage firms gain from favorable cost differentials, are relevant.
• Increasingly liberalized environment for trade.
• Globalization's expanding spiral, with customer needs and preferences converging
• Global enterprises acting as agents of change.

Forces of Local Differentiation and Local Responsiveness

• Cultural Differences: Consumer tastes and preferences, and ways of doing business are key.
• Country's Current Situation and Government Demands:
  • Technical standards such as access to the internet, online orders, e-commerce, redundancy, and power supplies.
  • Distribution channels like transport infrastructure.
  • National laws and regulations.
  • Local ownership restrictions (joint ventures), local content clauses, and property rights.
  • Includes political risks, inflation risks, social conflicts such as strikes and demonstrations, and legal risks relating to contract enforceability.

Cultural Dimensions (Hofstede Insights)

• Power Distance: Deals with the fact that all individuals in societies are not equal; defined as, the extent to which the less powerful members of institutions and organizations within a country expect and accept that power is distributed unequally.
• Individualism: Addresses the degree of interdependence a society maintains among its members, defined in terms of "I" or "We".
  • Individualist societies: People are supposed to look after themselves and their direct family only.
  • Collectivist societies: People belong to 'in groups' that take care of them in exchange for loyalty.
• Motivation Towards Achievement and Success
  • High score (Decisive): Driven by competition, achievement, and success, being defined as the winner/best in field (value system that starts in school and continues throughout organizational life).
  • Low score (Consensus-oriented): Caring for others and quality of life; where a sign of quality of life is the sign of success, and standing out from the crowd is not admirable.
• Uncertainty Avoidance: Dimension addresses the fact that the future can never be known. The extend to which the members of a culture feel threatened by ambiguous or unknown situations and have created beliefs and institutions that try to avoid these is reflected in a score.
• Long Term Orientation: Describes how every society has to maintain some links with its own past while dealing with the challenges of the present and future, given societies prioritize these two existential goals differently.
  • Normative societies: Prefer to maintain time-honored traditions and norms while viewing societal change with suspicion.
  • Pragmatic approach: Encourage thrift and efforts in modern education as a way to prepare for the future.
• Indulgence: Defined as the extent to which people try to control their desires and impulses, based on the way they were raised.
  • Relatively weak control: Called "Indulgence".
  • Relatively Strong control: Called "Restraint."
• Cultures can be described as Indulgent or Restrained.

Challenges between MNC’s & Host Government

• MNC Motivations:
  • Seeks capital, technology, and management from the host country.
  • Accommodates contributions to local social and economic needs.
  • Courts global efficiency and world market access.
• Host Country Government Motivations:
  • Fears the MNC's power and independence.
  • Dislikes MNCs impacts on society.
  • Resents the nation's dependence on MNCs.

Traditional Industries & Strategic Postures:

• Global Industry & Strategy:
  • Capitalizes on highly centralized, scale-intensive manufacturing/R&D.
  • Leverages worldwide exports of standardized global products.
  • Treats the world as a single integrated strategic unit.
• Multinational Industry & Strategy:
  • Builds strong and resourceful national subsidiaries sensitive to local markets.
  • Subsidiaries manage their local businesses by developing/adapting products to respond to localizing forces.
  • Treats the world as a portfolio of national opportunities.
• International Industry & Strategy:
  • Exploits technological forces by creating new products/processes effectively in one's home market.
  • Diffuses these innovations to foreign affiliates sequentially.
  • Treats overseas units as offshoots of domestic strategy.

Responding to Diverse Forces Simultaneously:

• Increased need for rapid and coordinated worldwide innovation/learning is driven by:
  • Shortening product life-cycles.
  • Increased cost of R&D.
  • Emergence of global technology standards.
  • Competitors' ability to develop and diffuse innovation globally.
• Transnational strategies involve responding to different sets of forces: global integration, national responsiveness, and worldwide learning.
• Firms need to aim for simultaneous global efficiency, national responsiveness, and worldwide innovation, being forced into the Transnational Industry.
• Developing all capabilities is needed, but not necessarily by choice.
• Increasingly, more industries were becoming transnational.

Deglobalization Impacts:

• The Splinternet:
  • Raises costs and reduces efficiency gains from shared global services.
  • Requires companies to choose between the U.S. and China camps.
  • Introduces the issue of data privacy.
• Intensifying War for Talent:
  • Reduces diversity as a source of competitive advantage.
  • Less opportunity to learn how to navigate across cultures/differing social norms.
  • Fewer knowledge spillovers occur.
• More Complicated Corporate Finances and Regulatory Regimes:
  • Raising capital/returning profits to shareholders becomes complex.
  • Creates a web of independent processes and regulations in different jurisdictions, requiring extraordinary specialized knowledge at the local level.

Deglobalization Implications:

• Imply a need to change organizational structure into loose collections of locally run companies.
• Involves a new role for corporate change.

Risk Management:

• Political risk is increasingly complicated given current state of:
  • Geopolitics.
  • Supply Chains.
  • Technology.

International Context - Political Risks

• Encompass geopolitics, internal conflicts, laws, regulations, policies.
• Includes breaches of contract, corruption, extraterritorial reach, and natural resource manipulation.
• Social activism, terrorism, and cyberthreats are also counted.
• Indicators of political risk and (in)stability:
  • Openness and the economic environment.
  • Government stability and food security.
  • Consideration of conflicts, including (civil) wars and water security.
  • Terrorism, embargos, and ethnic tensions.
  • Energy security, the rule of law, military involvement in politics.
  • Bureaucratic quality.
  • Climate change vulnerability and a regulatory environment.
  • Democratic accountability and corruption; poverty.

Political Risk Assessment

• Step 1: Understand the organization's political risk appetite and reduce blind spots.
• Step 2: Analyze and get good information using rigorous analysis, incorporating it into business decisions.
• Step 3: Mitigate exposure, ensure the system and team is in place for warning signs.
• Step 4: Respond by capitalizing on misses, reacting effectively to crises, and developing mechanisms for continuous learning.

Techniques for Managing Political Risks

• Recruiting local partners in the host country.
• Limit R&D in nations with weak IP protections.
• Purchasing insurance against political risks (expropriation of property, political violence, and currency inconvertibility).
• Diversifying FDI across different countries.