• They are quicker than greenfield investment, as the acquired business is already a going concern.

• The acquired company often already has a customer base on which to build.

• The acquired company has existing expertise in the local market.

The national environment influences entry mode in many ways (see Figure 7.2).The following can be highlighted:

• Ability to maximize the benefits of information and resources flows across the organization, and with outside organizations.

• From a management perspective, openness and the ability to involve all staff in decision-making, even those in dispersed locations. The openness of the network organization leads to an outward-looking perspective, enabling the firm to interact more meaningfully with stakeholders, both those directly involved in the business and those in the community.

One would probably agree with the proposition that the network organization is an attractive theory in terms of flexibility, but difficult to apply effectively in practice. Applying these principles in practice requires having staff with the skills and outlook to realize the potential benefits. This implies cross-cultural communication skills, leadership skills and an understanding of all aspects of the organization’s activities, not just a particular department. This is a tall order!
 

• Particularistic environment – weak formal regulatory framework, and paternalistic organizations. China is an example.

• Collaborative environment – strong institutions and co-operative behavior; associated with the strong state. Germany and Japan are examples, although the state role is rather different in each of these.

• Arm’s-length environment – strong institutions and strong regulatory culture, emphasizing procedural frameworks. The US is an example.

Foreign entry strategies reflect both the company’s own history and the national culture of its home environment. Some generalizations can be suggested, based on Whitley’s theory:

• In the particularistic firm, the owner has strong control. This type of firm is likely to view acquisition as an attractive entry mode, as it involves ownership and control. Greenfield projects are also attractive. The investor from a developing country is experienced in dealing with administrative hurdles and the need to develop the necessary social and political ties common in developing countries.

• For companies from collaborative environments, internationalization presents challenges, as much of their strength lies in their strong sense of homogeneous culture (as in Japan and German). Japanese car companies opted for greenfield investment in Western markets such as the US and UK, in which they attempted to replicate the Japanese corporate culture. In practice, they adapted to local environments, aided partly by the Japanese cultural preference for consensus-based management. The alternative is to keep a subsidiary entirely independent, which was in practice the approach of Daimler to the Chrysler acquisition.

• For companies from the market-oriented environment, contractual arrangements are paramount. These can be acquisitions, subsidiaries or outsourced production. In each case, the company tends to see the foreign operations as contributing to the wealth creation of the parent company. Strategy is determined by the parent company’s head office, which exerts control over operations in foreign locations.

 

 

Country focus             Poland (page 245)

What are the reasons behind the success of Poland’s emerging MNEs since 1990?

First, highlight the significance of Poland as a transition economy, including liberalization, privatization and democracy. The changes have encouraged business, including FDI. The reasons behind the success of Poland’s MNEs since 1990:

• Reduction in red tape, bureaucracy and excessive regulation.

• Growth in numbers of entrepreneurs, as new opportunities emerged.

• Desire of start-ups to internationalize, attracted particularly by other post-communist countries.

What tensions exist in the Polish social and political environment?

Some which are highlighted in the case study:

• Divide between regions which have prospered from market reforms and those which have not.

• Large number of unemployed people, and also a large number of people on state benefits, including disability, unemployment and early retirement. The generous system of welfare payments is a communist legacy, and recipients are fearful that market reforms will cut back these programs.

• Cultural tension between traditional, nation-based values (associated with strong Roman Catholic tradition) and more modern, secular values associated with consumer market society.

• Fragmented political landscape, reflected in a wide range of parties. Shaky coalition governments have become the norm, reflecting tensions between parties which favor market reforms and conservative parties which are skeptical of market reforms.

Asses the attractiveness of Poland as a destination for FDI.

Poland is an attractive destination for FDI despite significant drawbacks. The drawbacks include bureaucracy and red tape. Poor infrastructure is also a problem. Poland is a large country, and poor road and rail transport are obstacles for investors. These drawbacks add to the costs of investing in Poland, but if the attractions are overwhelming, they can compensate for the frustration with procedures and infrastructure.

Poland’s attractiveness stems from a number of features:

• A strategic location, well placed for serving Western European markets as well as Central and Eastern European markets.

• Large population and rapidly-growing market for consumer goods and services.

• Relative political stability, despite political turmoil at party level.

• GDP growth rate has remained steady.

• EU membership from 2004 helped to encourage FDI (see Figure), and also promised funding for infrastructure.

• Government led by the liberal Civic Platform Party under Donald Tusk is taking steps to join the eurozone.

Assessing the overall picture, the potential investor would probably agree that the advantages outweigh the drawbacks. But the advantages depend partly on how future developments shape up, and how competitive the location is in terms of costs for the potential investor. Reducing bureaucratic red tape is urgent, as delays and administrative costs reduce Poland’s attractiveness.

Strategic cross-roads       Weg Electric (page 250)

Describe and assess Weg’s international strategy in terms of competitive advantage.

Weg Electric is competing in an industry, electric motors, in which there are large, well-established global companies. As a Brazilian company, it is an emerging MNE. Its main source of competitive advantage is in its focus on customized products to suit customers’ needs. Also, it is able to respond quickly to customers because it carries out most of its own operations, including producing components. This strategy is one of differentiation, offering a product and service which engenders customer loyalty, making it less vulnerable to competition. Nonetheless, Weg has internationalized, not so much to reduce costs as to be near to customers.

Which of Weg’s firm-based resources are most advantageous, and why?

Its strength in R&D and training is possibly its most important firm-based resource, because they feed directly into innovation and product development. The company has not relied on outsourcing, and therefore has greater control over manufacturing and sourcing than rival companies, which are often caught up in disputes arising in managing these relationships. Weg’s sense of self-reliance, part of its German cultural heritage, is a firm-based resource and source of competitive advantage.