IntroductionMultinational firms should be thought of asmulticentered organizationalformswithsubsidiariesplaying different roles within a larger networkstructure to gain global integration as well as localresponsiveness.Byadoptinganinternallydifferentiatedform,ratherthan insisting onidentical roles for eachforeignsubsidiary,theMNC cantap thedistinctivecapabilities ofeachsubsidiaryand optimizeitsworldwideoperations
Introduction Multinational firms should be thought of as multicentered organizational forms with subsidiaries playing different roles within a larger network structure to gain global integration as well as local responsiveness. By adopting an internally differentiated form, rather than insisting on identical roles for each foreign subsidiary, the MNC can tap the distinctive capabilities of each subsidiary and optimize its worldwide operations
Dimensions of EvolutionGeographicExpansionGeographicProximityCultural SimilaritySimilarity in Economic DevelopmentLine of Business DiversificationLiability ofForeignnessFunctional Migration
Dimensions of Evolution Geographic Expansion • Geographic Proximity • Cultural Similarity • Similarity in Economic Development Line of Business Diversification • Liability of Foreignness Functional Migration
Geographic Expansion1.Geographic Proximity△Entering a neighbor country is a natural firststep, as the firm can more easily identify marketopportunities and gather vital information aboutcompetitive reactions and government policiesin a nearby country than in a distant one.AOncethefirmhas expandedinto nearbycountries, it may then move sequentially intocountries that are farther away,minimizing theincremental distanceofeachmove
Geographic Expansion 1. Geographic Proximity △Entering a neighbor country is a natural first step, as the firm can more easily identify market opportunities and gather vital information about competitive reactions and government policies in a nearby country than in a distant one. △Once the firm has expanded into nearby countries, it may then move sequentially into countries that are farther away, minimizing the incremental distance of each move
Geographic Expansion2. Cultural Similarity△Success in a foreign country requires anunderstanding of local customs and consumerhabits: effective communication withcustomers, suppliers,and employees; andgood relations with governmental bodies.AFirms often preferto enter countries that arerelatively similar in culture,i.e.,where thepsychic distance"islow
Geographic Expansion 2. Cultural Similarity △Success in a foreign country requires an understanding of local customs and consumer habits: effective communication with customers, suppliers, and employees; and good relations with governmental bodies. △Firms often prefer to enter countries that are relatively similar in culture, i.e., where the “psychic distance” is low
Geographic Expansion3.Similarityin EconomicDevelopment△ MNCs are often attracted to foreign marketswhere consumer buying habits and levels ofdisposable income are similar to those of homemarket consumers.A As the MNClearns howto compete effectivelyin foreign markets of similar economic standingit develops capabilities thatallow ittoenterincreasingly differentforeignmarkets
Geographic Expansion 3. Similarity in Economic Development △ MNCs are often attracted to foreign markets where consumer buying habits and levels of disposable income are similar to those of home market consumers. △ As the MNC learns how to compete effectively in foreign markets of similar economic standing, it develops capabilities that allow it to enter increasingly different foreign markets