Theories of Multinational Enterprises

This paper is a review on multinational companies, aiming to describe various types of global companies. It discusses several theories of multinational enterprises, including microeconomic tactics, Hymer-Kindleberger theory, product cycle theory, limited competition, internalization (transaction cost) theory, and the eclectic paradigm. The assignment provides an overview of motives behind multinational enterprises and strategic complexity in international business, examining factors that affect their establishment and growth.

3/16/2018
Running head: International business strategy
International Business Strategy
Multinational Enterprises
Singapore
MNE

International business strategy
1
Contents
Introduction......................................................................................................................................2
History.............................................................................................................................................3
Definition MNE...............................................................................................................................4
Strategic Complexity in International Business..............................................................................5
Factors that affect a MNE................................................................................................................7
Theory of MNE................................................................................................................................9
Macro Economic Approaches................................................................................9
Micro Economic Approaches..............................................................................11
Conclusion.....................................................................................................................................13
References......................................................................................................................................13

International business strategy
2
Introduction
This study tells how MNE’s (multinational enterprises) deal with a complex organizational
system of multiple countries, cultures, and markets. As per inter-organizational arrangements of
the MNE, here is a writing on theories and strategies by exhibiting the impact of structural
features of the MNE that begin from a special organization. After examining 124 MNEs and
their case study in 1,621, this investigation exhibits that MNE operations, for example, multi-
nationality, control structure, and provincial reliance, effects of various procedures in MNEs as
per two distinct viewpoints: trade-offs and strategic complexity. These discoveries give the effect
of both practice and theory. (Lee, 2018)
Numerous theories have been produced to clarify international projects of MNEs.
However, very less action has been made to study the quality or theoretically shortcomings of
every concept in describing the form, degree and example of MNEs by world-wide undertakings.
The point of the following article is (a) to survey ideas that try to explain the presence of MNEs,
(b) to determine the theories and (c) to single out
Factors that affect a MNE. At the end of the day, the paper basically evaluates how MNEs
manage the strategic complexity and trade-offs involved with this aspect of their operations. As
the name of the paper recommends, it is complete writing survey in English of systems of MNEs
in research. With a meaning of MNEs , the study begins. Different theories of Multinational
enterprises are investigated after that. With study on Strategic Complexity in International
Business, Factors that affect a MNE and conclusion, the paper closes. (Rugman & Brewer, 2014)

International business strategy
3
(Pettinger, 2018)
History
MNE is a long lasting wonders and this course tell how historical view lets us to better
understand MNE's behaviour, concentrating on the significance of time-Devouring procedures
and the significance of 'soft' measurements (e.g. elements not related to economics such as
culture, data exchange, politics...).Possibly no one will do deep study in History and most of
them not even bother about history. Despite the fact that, here considering MNE from the point
of view of history is done. The first MNE in the world is Dutch East India Company. It was
actually the world's major mega corporation that had semi government firm, including the ability
to arrange settlements, to take up arms, coin cash, and establish in abroad. The general works
done by them were improvised with time. New MNEs do many case studies and industrial
studies are done to know the roots of MNE’s. The studies done in past helped the companies and
businesses to grow and expand their businesses. (Rugman & Brewer, 2014)

International business strategy
4
Definition MNE
There have been various meanings of MNE that is also named as "international firms"
(company), "global companies" (firms), "worldwide organization", "denationalized partnership",
"multinational" or "cosmos firm". From the long time it is described as a "firm which claims and
controls pay creating incomes in more than one nation". The owner usually have 50% share
(over half) and is established in more than one nation. In United Nations' (U.N) less emphases in
paid on the possession. It said "all MNE’s which control resources - industrial facilities, mines,
deals workplaces and so forth - in at least two nations" are multinational.
While trying to define MNE, United Nations said that organizations which either holds stock
voting of 10% or 25 offers or resources in world could be viewed as MNEs. In any case, it didn't
block the issue with regards to the amount of property owner expected to be qualified as MNEs.
10% of ownership from foreign is requires in a company in United States, Germany and Sweden
to be called MNEs, 20% in France, 25% in Australia. Another researcher highlight the "size" of
Multinational Company and to qualify as MNE it required more six nations of activity and deals
incomes of US$100 million.
Another issue in the meaning of MNEs developed with the ascent in the non-value contribution
or purported "new types of worldwide endeavour" or "unbundled FDI” of firms through over
national limits like diversifying, administration contracts, and renting.
This resulted in the widening of meaning of MNE. Multinational enterprises are
described as "a company which claims or controls activities in at least two nations. These
exercises may prompt the creation of tangible products or intangible administrations or some mix
of the two". In addition "expanding the amount of produce, upgrading their quality or enhancing
their conveyance, both spatial and transitory".
Obviously, this definition unites companies with both value and authoritative contribution for
world to be called MNE. The main reason that makes a company MNE is the creation, quality
and dispersion of the produce and schemes, for which international firm get pay, which involve
more than one nation. Based on this, it characterize multinational undertaking as a firm which
has over 10% of value or lawfully binding inclusion like administration contracts, diversifying,
and renting understandings in more than one nation. (Leih, 2016)

International business strategy
5
Strategic Complexity in International Business
Although it is being so many years MNE’s are there in the industry but still there are so many
glitch in the strategies. There are many things which need to be corrected and updated. With the
analysis of so many factors and use of softer theories of strategic management is done, but some
factors lack that brings the business losses. Complexities can be of any type. The two main types
of complexity are recognized which are unplanned long term arrangement and social
systems/physical systems. Normal action systems that can be utilized to investigate complexity
under insecurity, and systems, are depicted, and e.g. of their utilization displayed. It is proposed
that the most profitable theoretical advancements in worldwide business are probably going to be
founded on this approach. These are the following basic strategies used in a MNE:
 Standardize
 Localization
 Regionalization
 Centralization
 Subsidiary Approach
Basic complexities faced by MNES are as followed:
 Foreign Government Regulations
 Product Strategy
 Product Adaptation
 Market Entry
 Operation Coordination
 Human Resources

International business strategy
6
Multinational Strategies
Source: (Leih, 2016)
Factors that affect a MNE
When considering the MNE’s condition, attention over public, economic, governmental,
mechanical and organizational states of markets is surely done. The advancement of the
international business condition are driven by complex mixes of these variables. In business, it is
important to keep in mind the investment environment when starting a MNE or a multinational
partnership. In establishing a multinational enterprises following factors affect a lot. (Cole-Ingait,
2015).

International business strategy
7
Political Factors
Political elements include laws, government plans and regular introductions of various
countries and national financial squares. The governmental variables figure the reason for
governing global exchange concerning duties, quantities and specialized measures. For example,
the UK has directions for certification particular exchange treatment for part nations. Political
security is an important point to consider in worldwide business. Visit military overthrows and
political concern can drive an international participation to close activities.
Economic Factors
In worldwide markets, rates of economic development affects the level of production and
administration in MNES. Rates of economic development may vary from nation to nation, it may
be low in one nation and high in other nation. In 2010-12, Eurozone and some other nations of
Europe, financial brake down occurred and on other hand other nations where meeting economic
blast. These variations of financial development are considered in the establishment and working
of MNE’s. Economic factor not only include the finance involved in the company but also the
finance required to make them and deliver them. This factor effects the over development of a
company. Only a small change in this factor can make or break the company. Not only is the
Economy of the country in which the trade is done or the manufacturing is done considered, but
the country in which trade is done is considered. If economy of any country is changed the
infrastructure of the company is changed.
Technological Factors
The availability of Technological Factors and specific limits are main factors of success of a
MNE in a country. Broadband network and specialized. The factors like specialized preparing
and broadband network are considered main points to bring changes to business world. The
technological advancements level in a country decide the specialized comprehension in the
community. In developed nation, technological factors do not effect that much but in
underdeveloped nation, technological factors affects a lot. Technology factor is not only

International business strategy
8
important for the company but also for the worker in that company. As the technology change
not only brings profit but also new products and advance techniques which changes the whole
structure of the company.
Social Factors
Factors like culture, religion effects the quality, highlights and demand for the product in
the market. Time, names, objects, shading and performances are also affected by the Societies.
General Motors named there car as Nova which meant, it doesn't move, in Spanish language
which effected its sales to an extent. The factors that affect MNEs the most is social factor
because the customers lay in this factor. A MNE should always remain updated with the social
factor to survive in the market.
Theory of MNE
Sources: (Leih, 2016)
Macro Economic Tactics
This include the major theories of MNES:

International business strategy
9
FDI by MNEs:
A FDI also called foreign direct investment is a method of controlling ownership in a
business in one nation by an element situated in another nation. It is therefore recognized from
an outside portfolio project by a thought of direct control. The starting point of the share does not
affect the definition, as a FDI: the project might be made either "inorganically" by purchasing an
organization in the objective nation or "naturally" by extending the tasks of a current business in
that nation. (Leih, 2016)
Location Theory of International Investment
The theory of area can be reasonably connected to the organizations from developing
nations. This is particularly valid for firms from China.15 at the end of the day, the cash based
theory of FDI, is additionally explaining for remote theory from the underdeveloped nations.
This theory is used by MNE’s to become successful and gain profits (Leih, 2016).
Government Imposed Distortions
Another kind of distortions happens when government policies are set in business sectors
that are competitive and show no other alterations or defects. In this manner assume the
government of a little nation sets an exchange plan, for example, a rate on imports. (Leih, 2016)
The Aliber Theory
Aliber theory is the first actions to explain the quality of money based on FDI. It showed a
theory which compares the different financial ideals. ... With no FDI. Aliber study says that

International business strategy
10
invest money by taking money from country that has strong currency and sell their products to
countries that have weak currency to get profit and remain on top in competitive market. Many
MNEs follow Aliber theory to gain profits.
MNEs as Supplement to International Trade
A country will export goods that it can produce in lower costs relatively to other countries.
On other hand each country will import goods that have lower cost. Keeping in mind this fact
Kojima created theory for MNE. Kojima explained "resource oriented" (b) "labour oriented" (c)
"market oriented" for doing business as multinational company. (Leih, 2016)
Sources: (Leih, 2016)
Micro Economic Tactics
Following are the micro theories of MNE’s:
Business Management Method:
There are two types of the Business Management Method; first views Multinational
national company because of the development of the organisation, and the second considers
MNEs to be a technique of internalization in the basic leadership "because of decreasing of

International business strategy
11
supernatural separation through supervisor's progressive combination of experiential learning for
remote markets" (Leih, 2016)
Hymer-Kindleberger Theory
In financial aspects, a market disappointment is a condition wherein the distribution of
creation or utilization of produce and projects by the free market isn't effective. ... The possibility
that multinational enterprises (MNEs) owe their reality to advertise defects was first advanced by
Stephen Hymer, Caves and Charles P. Kindleberger. (Leih, 2016)
Product Cycle Theory
Life cycle theory divides the advertising of a product in four phase: growth, delay and
presentation. The advertising of the product life cycle basically depend on the presentation,
volume and development. When product life cycle effect capacity, performance and growth so it
is the major factors that effects a MNE in it establishment and growth (Leih, 2016).
Limited competition
This study recommends that competitive companies will react to starting Foreign direct
investment of opponent businesses keeping it in mind the end goal to grab a piece of the overall
industry. 187 MNE’s were studied by Knickerbocker to find that the theories are practical.
171 Multinational Enterprises were experimented to check Theories not frame a different model
of MNEs. This should have been clarified is the underlying demonstration of MNEs. (Leih,
2016)
Internalization (Transaction Cost) Theory of MNEs
Transaction Cost theory is "related with both financial aspects and procedure through
connections to exchange cost financial aspects and the asset based system of a company". The

International business strategy
12
multinational enterprise can decrease their start-up costs and danger of protected innovation
robbery utilizing this strategy. (Leih, 2016)
Varied Standard
The theory of Eclectic Paradigm used in economic sides and is also called the OLI
Agenda. It is an improvement of the worldwide theory and created by John H. Dunning.
Sources: (Lee, 2018)
Conclusion
This paper is a review on multinational companies that try to describe different types of
worldwide companies. Theories of multinational enterprises provide a suggestion or vision either
about purposes in companies to travel to another country or central points that permit national
firms to travel to another country or strategies of traveling to another country. In this sense one
might say that each concept has logical power with regards to global schemes of companies. This
review gives an overall view about motives of multinational enterprises and Strategic
Complexity in International Business. This also examines and pinpointing factors that affect a
multinational enterprises (Leih, 2016).
References

International business strategy
13
Cole-Ingait, P. (2015). Factors That Affect a Multinational Corporation.
Retrieved from smallbusiness: http://smallbusiness.chron.com/factors-
affect-multinational-corporation-75252.html
Lee, J. M. (2018). Managing Complex MNEs. Retrieved from proceedings.com:
http://proceedings.aom.org/content/2016/1/13284.short
Leih, S. (2016). Theory of the Multinational Corporation. Multinational
Enterprises, 4.
Pettinger, T. (2018). Balanced and unbalanced economic growth.
economicshelp.
Rugman, A. M., & Brewer, T. L. (2014). Oxford Handbook of International
Business. Retrieved from oxford scholarship:
http://www.oxfordscholarship.com/view/10.1093/0199241821.001.000
1/acprof-9780199241828-chapter-4