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Henry: Understanding Strategic Management

Chapter 09

Multinational enterprises (MNEs) are the key drivers of globalization, as they foster increased economic interdependence among national markets. The ultimate test to assess whether these MNEs are global themselves is their actual penetration level of markets across the globe, especially in the broad 'triad' markets of NAFTA, the European Union and Asia. Yet, data on the activities of the 500 largest MNEs reveal that very few are successful globally. For 320 of the 380 firms for which geographic sales data are available, an average of 80.3% of total sales are in their home region of the triad. This means that many of the world's largest firms are not global but regionally based, in terms of breadth and depth of market coverage. Globalization, in terms of a balanced geographic distribution of sales across the triad, thus reflects a special, and rather unusual, outcome of doing international business (IB). The regional concentration of sales has important implications for various strands of mainstream IB research, as well as for the broader managerial debate on the design of optimal strategies and governance structures for MNEs.

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Global strategy recently has emerged as a popular concept among managers of multinational corporations (MNC), as well as among researchers and students in the field of international management. However, until recently, there has been no organizing framework within which to assimilate different perspectives and prescriptions concerning global strategy. A proposed framework organizes the goals of a multinational company into 3 broad categories: 1. achieving efficiency in current operations, 2. managing risks, and 3. innovating and adapting to future changes. Competitive advantage is developed by optimizing the firm's achievement of these different and sometimes conflicting goals. Toward this end, a firm may use 3 sets of tools: 1. exploiting differences in input and output markets, 2. exploiting economies of scale, and 3. exploiting economies of scope. Inherent contradictions between strategic objectives and between the sources of competitive advantage make trade-offs necessary.

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